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Landon Stevens is evaluating the expected performance of two commonstocks, Furhman Labs, Inc., and Garten Testing, Inc. The risk-freerate is 5.6 percent, the expected return on the market is 13.0percent, and the betas of the two stocks are 1.8 and .7,respectively. StevensAc€?cs own forecasts of the returns on the twostocks are 17.20 percent for Furhman Labs and 11.60 percent forGarten.
1.
Calculate the required return for each stock. (Do not roundintermediate calculations. Enter your answers as a percent roundedto 2 decimal places. Omit the “%” sign in your response.)
Stock Required Return
Furhman Labs %
Garten Testing %
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Order Paper Now2. Is each stock undervalued, fairly valued, orovervalued?
Furhman Labs
Fair valued
Undervalued
Overvalued
Garten Testing
Overvalued
Fair valued
Undervalued
