Fair value > market value --> undervalued
Fair value > expected value --> overvalued… WHY??? I dont understand it… shouldnt it be like the one above!!!
(this is the same as saying: required rate of return < expected return, right?
Thank you in advance…
Another way to think of this:
If the market value is below the fair value, than that’s a great deal… buy it because its undervalued and should appreciate to fair value.
If the expected value is below the fair value, than why would you want to get it. The expected value is the expected appreciated value, which is below fair value… Therefore, this thing is overpriced!
ok, so we I double checked and it is like this, I confused returns and price:
Fair value > Mkt value --> undervalued… this is the same as saying market yield > required rate of return (negative relationship between the return and the price)
Fair value > expected value --> undervalued … required rate of return < expected return … CAPM < expected return…