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Here are data on two companies. The T-bill rate is 4% and the market risk...

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Here are data on two companies. The T-bill rate is 4% and the market risk premium is 6%. Company $1 Discount Store Everything $5 Forecasted return 12% 11% Standard deviation of returns 8% 10% Beta 1.5 1.0 a. What would be the fair return for each company according to the capital asset pricing model (CAPM)? Note: The expected return for a given asset, E(ri), is the return predicted by the CAPM for a given level of systematic risk. E(ri) = r+ Bi x [E (rm) rz], r7 is the risk-free rate (T-bill rate), Bi is Beta, Erm) is market risk premium. b. Characterize each company in the previous problem as underpriced, overpriced, or properly priced. Note: If the forecasted return is greater than the required rate of return, the security is currently undervalued, or selling at a price lower than its fundamental value. The higher the return, the lower the stock price. And the vice versa

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