MGT201 GDB

MGT201 2nd GDB:
Your neighbor is a security analyst. He has conducted his research about some stocks in Karachi Stock Exchange (KSE) and his findings are as follows:Stock A will have a return of 18%, stock B will have a return of 20 % and stock C will have a return of 22%, but his findings do not involve the CAPM (Capital Asset Pricing Model). You are a business graduate and when you have used CAPM, you have come to know that:Stock A’s expected return is 15.50%, Stock B’s expected return is 24.63% and Stock C’s expected return is 25.39%.In your opinion, whether the KSE has over-priced or under-priced each stock and in the light of these results, which of these stocks are suitable for investment?
ANS:
KSE Return: Stock A : 18% ------> 15.50%Stock B : 20% ------> 24.63%Stock C : 22% ------> 25.39%for A KSE is over prized&for B, & C KSE has under prized.In my opinion Stock A is more suitable for investment then B or C. It has more return 18% then compared to 15.50%...