Assume the Capital Asset Pricing Model is true and that all securities should lie along the line created by the equation (the Security Market Line). Greg Noronha has been told the expected return on Merchants Bank is 9.75%, He knows the risk-free rate is 1.9%, the market risk premium is 6.75%, and Merchants' beta is 1.15. Based on the Capital Asset Pricing Model, Merchants Bank is: A. fairly valued. B. undervalued. C. overvalued.
Assume the Capital Asset Pricing Model is true and that all securities should lie along the line created by the equation (the Security Market Line). Greg Noronha has been told the expected return on Merchants Bank is 9.75%, He knows the risk-free rate is 1.9%, the market risk premium is 6.75%, and Merchants' beta is 1.15. Based on the Capital Asset Pricing Model, Merchants Bank is: A. fairly valued. B. undervalued. C. overvalued.
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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Assume the
Greg Noronha has been told the expected return on Merchants Bank is 9.75%, He knows the risk-free rate is 1.9%, the market risk premium is 6.75%, and Merchants' beta is 1.15. Based on the Capital Asset Pricing Model, Merchants Bank is:
| A. |
fairly valued. |
|
| B. |
undervalued. |
|
| C. |
overvalued. |
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