Consider a security with a beta of 1.2, when the market risk premium is 5%, and the risk-free rate is 2%. After researching this security, you think that you would get a return of 10% if you bought this security and held it for one year. Is the security that you are considering over-priced or under-priced? Explain your answer.
Consider a security with a beta of 1.2, when the market risk premium is 5%, and the risk-free rate is 2%. After researching this security, you think that you would get a return of 10% if you bought this security and held it for one year. Is the security that you are considering over-priced or under-priced? Explain your answer.
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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Consider a security with a beta of 1.2, when the market risk premium is 5%, and the risk-free rate is 2%. After researching this security, you think that you would get a return of 10% if you bought this security and held it for one year. Is the security that you are considering over-priced or under-priced? Explain your answer.
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