MGT201 GDB

Your neighbor is a security analyst. He has conducted his research about some

stocks in Karachi Stock Exchange (KSE) and his findings are as follows:
Stock A will have a return of 18%, stock B will have a return of 20 % and stock C
will have a return of 22%, but his findings do not involve the CAPM (Capital
Asset Pricing Model).
You are a business graduate and when you have used CAPM, you have come to
Stock A’s expected return is 15.50%, Stock B’s expected return is 24.63% and
Stock C’s expected return is 25.39%.
In your opinion, whether the KSE has over-priced or under-priced each stock
and in the light of these results, which of these stocks are suitable for


Solution:


Stock A : 18% ------> 15.50%

Stock B : 20% ------> 24.63%

Stock C : 22% ------> 25.39%

for A KSE is over prized

for B, & C KSE has under prized.

In my opinion Stock A is more suitable for investment then B or

C. It has more return 18% then compared to 15.50%...

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