The risk free rate of return is 3.4%; the expected return of the market portfolio is 12.2% and the beta of Stock A is 1.36. An analyst has estimated that the expected return of Stock A is 14.87%. According to the Capital Asset Pricing Model, Stock is Underpriced because its expected return should be 15.37 percent according to the CAPM Overpriced because its expected return should be 15.37 percent according to the CAPM Overpriced because its expected return should be 19.99 percent according to the CAPM Underpriced because its expected return should be 19.99 percent according to the CAPM
The risk free rate of return is 3.4%; the expected return of the market portfolio is 12.2% and the beta of Stock A is 1.36. An analyst has estimated that the expected return of Stock A is 14.87%. According to the Capital Asset Pricing Model, Stock is Underpriced because its expected return should be 15.37 percent according to the CAPM Overpriced because its expected return should be 15.37 percent according to the CAPM Overpriced because its expected return should be 19.99 percent according to the CAPM Underpriced because its expected return should be 19.99 percent according to the CAPM
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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Transcribed Image Text:The risk free rate of return is 3.4%; the expected return
of the market portfolio is 12.2% and the beta of Stock A
is 1.36. An analyst has estimated that the expected
return of Stock A is 14.87%. According to the Capital
Asset Pricing Model, Stock is
Underpriced because its expected return should be
15.37 percent according to the CAPM
Overpriced because its expected return should be 15.37
percent according to the CAPM
Overpriced because its expected return should be
19.99 percent according to the CAPM
Underpriced because its expected return should be
19.99 percent according to the CAPM
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