Your Broker Has Advised You That He Believes That the Stock

question 90

Multiple Choice

Your broker has advised you that he believes that the stock of Brat Inc.is going to rise from $20 to $22.15 per share over the next year.You know that the annual return on the S&P 500 has been 11.25% and the 90-day T-bill rate has been yielding 4.75% per year over the past 10 years.If beta for Brat is 1.25,will you purchase the stock?

• A) Yes, because it is overvalued
• B) No, because it is overvalued
• C) No, because it is undervalued
• D) Yes, because it is undervalued
• E) Yes, because the expected return equals the estimated return

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Definitions:

Collection Time

The standard timeframe a business needs to obtain amounts owed by its customers.

Mailing Days

Mailing Days are business days considered when estimating the delivery time for postal and courier services, excluding weekends and holidays.

Bank Deposit

Money placed into a banking institution for safekeeping, which can include savings accounts, checking accounts, and certificates of deposit.

Availability Delay

The lag time between when a deposit is made in a bank account and when the funds are available for use.