CAPM

CFA Level II
#1

I think my brain is fried, I just did a stalla question which should be pretty simple. I calculated expected return for a stock using CAPM to be 9.4%. The forecast one-year return on the stock is 12% (given). a) do not recommend stock b) recommend stock to clients c) do more research which is the correct answer?

#2

a?

#3

B

#4

b right?..above SML means security is undervalued.

#5

I agree, B is correct CAPM is not the realized return unless market is in equilibrium. If my forecast is higher than CAPM assumed return then the security is underpriced in the mkt.

#6

yes its B