This stock is undervalued because the CAPM return for the stock is 7.23% that is option B is correct.
The value of the stock can be calculated using the CAPM model which stands for Capital Asset Pricing model. The formula for calculating the CAPM expected return will be given as
R = Rₓ + (Rₐ - Rₓ)β
where Rₓ is the risk free rate, (Rₐ - Rₓ) is the market risk premium, β is the beta of investment and R is the CAPM expected return. Now, if we put the values then
R = 1.9% + 7.3% × 0.73
R = 1.9% + 5.33
R = 7.23%
Now, expected return is 9% and the CAPM expected return is 7.23% so this stock is undervalued.
Learn more about CAPM model at:
brainly.com/question/23969100
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Complete Question:
wilson farms' stock has a beta of .73 and an expected return of 9.0%. the risk-free rate is 1.9% and the market risk premium is 7.3%. this stock is ________because the capm return for the stock is _____%. group of answer choices; 7.53 overvalued; 7.23 undervalued; 7.23overvalued; 7.53 undervalued
