Stock A has a beta of 0.87 and an expected return of 9.21 percent. Stock B has a beta of 1.36 and an expected return of 10.58 percent. Stock C has a beta of 1.12 and an expected return of 10.68 percent. The risk-free rate is 2.7 percent, and the market risk premium is 6.8 percent. Which of these stocks are underpriced?

Q: Which one of the following stocks is correctly priced if the risk-free rate of return is 4.1 percent…

A: We will apply the CAPM model here. CAPM stands for Capital Asset Pricing Model.

Q: beta of 1.40 and an expected return of 19%. Stock Z has a beta of 0.65 and an expected return of…

A: We need to compute expected return using CAPM (Capital asset pricing model) for each stock. CAPM…

Q: A stock is expected to have an alpha of 1.70%, an expected return of 8.02%, and a standard deviation…

A: The standard deviation of the non-systematic component of the stock's return under the single index…

Q: Consider two stocks, A and B. Expected returns on these stocks are: Standard deviations of their…

A: Given,The expected return of stock A = 10.79%The expected return of stock B = 13.80%The standard…

Q: The return on Stock A is 20%, 10 %, and -25% when the market condition is good, normal, and bad,…

A: Co-variance is shows the relationship between the two stock returns and standard deviation.

Q: A stock has an expected return of 15.7 percent, the risk-free rate is 6.25 percent, and the market…

A: Given The expected return is 15.7 percent Risk free rate is 6.25% Market risk premium is 7.6%

Q: A stock has a market beta of 0.62 and a standard deviation of 0.27. If the market standard deviation…

A: Market Beta is 0.62 The standard deviation of a stock is 0.27 The market standard deviation is 0.30…

Q: Stock Y has a beta of 1.40 and an expected return of 15.2 percent. Stock Z has a beta of .85 and an…

A: The expected rate of return on an investment with no default risk is known as the "risk-free rate."…

Q: Stock Y has a beta of 1.50 and an expected return of 14.2 percent. Stock Z has a beta of .85 and an…

A: In order to determine whether a stock is overvalued or undervalued, we have to calculate the…

Q: Y has a beta of 1.50 and an expected return of 17 percent. Stock Z has a beta of 0.80 and an…

A: CAPM gives the required rate of return based beta of the stock and risk free rate and market average…

Q: The risk-free rate is 5.6%, the market risk premium is 8.5%, and the stock's beta is 2.27. What is…

A: Following details are given in the question: Risk free rate = 5.6% Market Risk premium = 8.5%…

Q: Stock Y has a beta of 1.30 and an expected return of 13.0%. Stock Z has a beta of .75 and an…

A: We will calculate the expected return using the Capital Asset Pricing Method and then compare with…

Q: Stock Y has a beta of 1.50 and an expected return of 14.2 percent. Stock Z has a beta of .85 and an…

A: CAPM is the capital asset pricing model and is used to find the required return using the following…

Q: erilu Markets has a beta of 1.46. The risk-free rate of return is 2.98 percent and the market rate…

A: Risk premium = Beta(market return - risk free rate)

Q: Let r be the expected return of stock i, rRE represent the risk-free rate, b represent the Beta of a…

A: Capital Asset Pricing Model: The CAPM explains the relationship between expected return and…

Q: Stock A has a beta of 1.62 and an expected return of 19.1 percent. Stock B has a beta of 1.02 and an…

A: The Capital Asset Pricing Model (CAPM) is a financial model that describes the relationship between…

Q: Stock Y has a beta of 0.9 and an expected return of 12.6 percent. Stock Z has a beta of 6 and an…

A: A graphical representation of CAPM (capital asset pricing model) is termed as SML (security market…

Q: The common stock of Alpha Gamma has an expected return of 10.6 percent. The risk-free rate is 3.5…

A: The expected return on a stock is dependent upon the risk free rate;the prevailing market rate of…

Q: The standard deviation of returns of a particular stock is 43% and that of the market is 35%. The…

A: Beta measures the market risk of any stock. A beta can be negative, positive, 0 or 1. A beta of 1…

Q: A stock has a beta of 1.38. The risk free rate is 0.817% and the market risk premium is 5%. What is…

A: Solution:- Capital Asset Pricing Model (CAPM) is the model which helps to compute the fair return on…

Q: The risk-free rate is 3.7 percent and the expected return on the market is 12.3 percent. Stock A has…

A: If expected return is more than required return then security is undervalued.If required return is…

Q: A certain stock has a beta of 1.3. If the risk-free rate of return is 3.9 percent and the market…

A: Expected return on a stock implies the returns expected on a stock after taking into consideration…

Q: The risk-free rate of return is 3.7 percent and the market risk premium is 6.2 percent. What is the…

A: The given question can be solved using capital asset pricing model (CAPM)

Q: es Stock Y has a beta of 1.5 and an expected return of 16.1 percent. Stock Z has a beta of 1 and an…

A: Step 1:It shows the excess return generated per unit of systematic risk. Excess return implies…

Q: The risk-free rate is 3% and the market risk premium is 9%.  If stock A has a beta of -0.9, what is…

A: Formulas: Required return = Risk free rate + (Beta*Market risk premium)

Q: Stock Y has a beta of 0.9 and an expected return of 11.4 percent. Stock Z has a beta of 1.5 and an…

A: Expected return is an important metric in investment analysis, as it helps investors assess the…

Q: 1.The risk-free rate of return is 2.6 percent and the market risk premium is 10 percent. What is the…

A: We need to find out the expected return of the stock by using Capital Asset Pricing Model (CAPM).…

Q: The risk-free rate of return is 3.75 percent and the market risk premium is 6.5 percent. What is the…

A: Risk free rate of return = rf = 3.75% Market risk premium = mrp = 6.5% Beta = b = 0.84

Q: Stock R has a beta of 1.4, Stock S has a beta of 0.95, the expected rate of return on an average…

A: The required return of the stock is calculated using the Capital asset pricing model(CAPM ).    The…

Q: A stock has an expected return of 16 percent, its beta is 0.6, and the risk-free rate is 6.4…

A: Given the following information: Expected return on stock (r) = 16% Beta (b) = 0.6 Risk free rate…

Q: Stock A has a beta of 1.5 and Stock B has a beta of 0.8. Which of the following statements is most…

A: Beta is an important measure of risk used to evaluate stocks. It is a measure of a stock's…

Q: Stock Y has a beta of 1.8 and an expected return of 18.2 percent. Stock Z has a beta of 8 and an…

A: Reward to Risk Ratio= (Expected return - Risk free rate) / Beta of Stock

Q: A stock has an expected return of 13.4 percent and a beta of 1.15, and the expected return on the…

A: The Capital Asset Pricing Model (CAPM) is a financial model that establishes a relationship between…

Q: A stock has an expected return of 18.0 percent, a beta of 1.90, and the return on the market is…

A: 2Investors have different options for making investments, and the motive behind investments is to…

Q: Following the Systematic Risk Principle, which of the following stocks has the smallest risk…

A: Risk of an investment refers to the variability of returns from the investment. In other words, risk…

Q: A stock has an expected return of 9.9 percent, the risk-free rate is 1.8 percent, and the market…

A: Expected return = 9.9% Risk free rate = 1.8% Market risk premium = 4.3%

Q: A stock has an expected return (rs) of 10.4%, the risk-free rate (fer) is 1.7%, and market risk…

A: Capital Asset Pricing Model (CAPM) is an alternative model to find out the expected return of stock…

Q: Stock Y has a beta of 1.45 and an expected return of 13.50 percent. Stock Z has a beta of .70 and an…

A: In this question  we are given expected returns and beta of two stocks i.e. Stock Y and Stock Z and…

Q: Stock A has an expected return of 13.52 percent. Stock B has an expected return of 9.24 percent.…

A: The concept in question is based on the Capital Asset Pricing Model (CAPM), a finance theory used to…

Q: Stock Y has a beta of 1.2 and an expected return of 14.5 percent. Stock Z has a beta of 0.7 and an…

A: Reward to risk ratio can be calculated as:Reward-to-risk ratio = (Expected return - Risk-free rate)…

Q: Stock Y has a beta of 0.9 and an expected return of 9.46 percent. Stock Z has a beta of 2.1 and an…

A: In this question  we are given expected returns and beta of two stocks i.e. Stock Y and Stock Z and…

Q: Stock Y has a beta of 1.4 and an expected return of 15.1 percent. Stock Z has a beta of .7 and an…

A: Step 1:Reward to risk=(return-risk free rate)/betaReward to risk ratioStock…

Q: The returns on each of the three stocks are positively correlated, but they are not perfectly…

A: As per CAPM   Ri = Rf + B (Rm - Rf) Where Ri = Return on equity Rf = Risk free rate of return B =…