An analyst collected the following data for three possible investments. The expected return on the market is 12% and the risk-free rate is 4%. According to the security market line (SML), which of the three securities is correctly priced? 1)Alpha Stock : Price Today : 25 Forecast price : 31 Dividend : 2 Beta : 1.6 2)Omega Stock : Price Today : 105 Forecast price : 110 Dividend : 1 Beta : 1.2 3)Lambda Stock : Price Today : 10 Forecast price : 10.8 Dividend : 0 Beta : 0.5
An analyst collected the following data for three possible investments. The expected return on the market is 12% and the risk-free rate is 4%. According to the security market line (SML), which of the three securities is correctly priced? 1)Alpha Stock : Price Today : 25 Forecast price : 31 Dividend : 2 Beta : 1.6 2)Omega Stock : Price Today : 105 Forecast price : 110 Dividend : 1 Beta : 1.2 3)Lambda Stock : Price Today : 10 Forecast price : 10.8 Dividend : 0 Beta : 0.5
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 7P
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Question
An analyst collected the following data for three possible investments. The expected return on the market is 12% and the risk-free rate is 4%. According to the security market line (SML),
which of the three securities is correctly priced?
1)Alpha Stock : Price Today : 25 Forecast price : 31 Dividend : 2 Beta : 1.6
2)Omega Stock : Price Today : 105 Forecast price : 110 Dividend : 1 Beta : 1.2
3)Lambda Stock : Price Today : 10 Forecast price : 10.8 Dividend : 0 Beta : 0.5
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