Simple Question, Portfolio Management

CFA Level I Portfolio Management
#1

Holding period (expected) return of a stock is 12%

Required return is 11% ( found using rr= RFR+ β x (market risk premium) )

Given in the question is that expected return on the market is 15%.

Do you reccomend a buy simply because ER>RR (stock is underpriced)? Or does expected market return trump that and thus make the stock a pass?

#2

If it’s underpriced, buy it.

The market has a higher expected return because it has higher risk.

#3

I figured as much, there was an error in my study notes.

Thanks for the reassurance and all your other contributions to the board.

#4

My pleasure.