he risk-free rate is 4.2 percent and the expected return on the market is 12.3 percent. Stock A has a beta of 1.2 and an expected return of 13.1 percent. Stock B has a beta of 0.75 and an expected return of 11.4 percent. Are these stocks correctly priced? Why or why not? No, Stock A is underpriced and Stock B is overpriced. No, Stock A is overpriced and Stock B is underpriced. No, Stock A is overpriced but Stock B is correctly priced. No, Stock A is underpriced but Stock B is correctly priced. Yes, both stocks are correctly priced.
he risk-free rate is 4.2 percent and the expected return on the market is 12.3 percent. Stock A has a beta of 1.2 and an expected return of 13.1 percent. Stock B has a beta of 0.75 and an expected return of 11.4 percent. Are these stocks correctly priced? Why or why not? No, Stock A is underpriced and Stock B is overpriced. No, Stock A is overpriced and Stock B is underpriced. No, Stock A is overpriced but Stock B is correctly priced. No, Stock A is underpriced but Stock B is correctly priced. Yes, both stocks are correctly priced.
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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Question
he risk-free rate is 4.2 percent and the expected return on the market is 12.3 percent. Stock A has a beta of 1.2 and an expected return of 13.1 percent. Stock B has a beta of 0.75 and an expected return of 11.4 percent. Are these stocks correctly priced? Why or why not?
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No, Stock A is underpriced and Stock B is overpriced.
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No, Stock A is overpriced and Stock B is underpriced.
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No, Stock A is overpriced but Stock B is correctly priced.
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No, Stock A is underpriced but Stock B is correctly priced.
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Yes, both stocks are correctly priced.
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