A stock has an HPR of 6.4% and a CAPM return of 9.5%. Which of the folloving is true? You should short the stock because it is undervalued. You should short the stock because it is overvalued. You should buy the stock because it is overvalued. O You should buy the stock because it is undervalued.

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
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Please andwer both. A stock has an HPR of 6.4% and a CAPM return of 9.5%. Which of the folloving is true?

  • You should short the stock because it is undervalued.
  • You should short the stock because it is overvalued.
  • You should buy the stock because it is overvalued.

O You should buy the stock because it is undervalued.

QUESTION 2

The Beta for a company on finance.yahoo.com is much lower than the Beta given on finviz.com. If you were to use the beta from finance.yahoo.com instead of the one on finviz.com, which of the following is true?

  • The alpha calculated with yahoo's beta will be much lower, so that stock may appear undervalued instead of overvalued.
  • The alpha calculated with yahoo's beta may be much higher, so the stock may appear overvalued instead of undervalued.
  • Cannot be determined without more information.
    The alpha calculated with yahoo's beta will be much higher, so that stock may appear undervalued instead of overvalued.
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