Bernie is a stock analyst at JP Mortgage. He uses CAPM to estimate if Magma (MGMA) stock is trading cheap or expensive relative to CAPM's prediction. The risk free rate is 4.00%, the market expected return is 14%, and Magma's Beta = 1.5. MGMA stock is trading at a price consistent with an expected return of 21%. Please mark the only INCORRECT statement about MGMA stock. a. MGMA's is trading expensive, therefore the trading desk should go SHORT MGMA b. MGMA's alpha is +2.00% C. MGMA is trading cheap relative to its fundamental value d. Bernie should recommend the trading desk to GO LONG MGMA's
Bernie is a stock analyst at JP Mortgage. He uses CAPM to estimate if Magma (MGMA) stock is trading cheap or expensive relative to CAPM's prediction. The risk free rate is 4.00%, the market expected return is 14%, and Magma's Beta = 1.5. MGMA stock is trading at a price consistent with an expected return of 21%. Please mark the only INCORRECT statement about MGMA stock. a. MGMA's is trading expensive, therefore the trading desk should go SHORT MGMA b. MGMA's alpha is +2.00% C. MGMA is trading cheap relative to its fundamental value d. Bernie should recommend the trading desk to GO LONG MGMA's
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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