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nadya68 [22]
2 years ago
13

The market rate of return is 11 per cent and the risk-free rate of return is 3 per cent. Lexant NV has 3 per cent less systemati

c risk than the market and has an actual return of 12 per cent. This equity:
Business
1 answer:
Soloha48 [4]2 years ago
8 0

Answer:

underpriced

Explanation:

Without mincing words, let us dive straight into the solution to the solution to the question. From the above problem, the following data or information are given:

=> market rate of return = 11 per cent, risk-free rate of return = 3 per cent,  Lexant NV = 3 per cent less systematic risk than the market, actual return = 12 per cent.

The expected return = [ 11% - 3%] × 0.97 + 3%  = 10.76%.

We are given the actual return to be 12% which is greater than the expected return which is 10.76%.

The equity is overpriced.

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