Based on the CAPM, are the shares of Company B undervalued, fairly valued, or overvalued? What is the stock’s alpha?

PROMPT

Assume that the risk-free rate is 4% and the expected market risk premium is 9%. You are considering buying a share of Company B at a price of $72. Company B has a beta of 1.2 and is expected to pay a dividend of $2 per share next year. You expect to be able to sell next year for $76 per share.

Based on the CAPM, are the shares of Company B undervalued, fairly valued, or overvalued? What is the stock’s alpha? Show your work (and be sure to answer the two questions)

A Call option with a strike price of $15 when the underlying share price is $18 is selling for a premium of $3.25. What is the option’s time value?

A call option on Microsoft with expiration in June 2023 and strike price of $220 is selling for a premium of $118 per share. What is the profit for the holder of the option if the stock price at expiration is 389.

A put option on Microsoft with expiration in June 2023 and strike price of $220 is selling for a premium of $3 per share. What is the profit for the holder of the option if the stock price at expiration is 151.

Based on the CAPM, are the shares of Company B undervalued, fairly valued, or overvalued? What is the stock’s alpha?