Question 13.7: An asset is said to be overvalued if its price is too high g...

Fundamentals of Corporate Finance

An asset is said to be overvalued if its price is too high given its expected return and risk. Suppose you observe the following situation:

Security	Beta	Expected Return
SWMS Co.	1.3	14%
Insec Co.	.8	10

The risk-free rate is currently 6 percent. Is one of the two securities overvalued relative to the other?

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