A Friend Has Information That the Stock of Zip Incorporated

question 49

Multiple Choice

A friend has information that the stock of Zip Incorporated is going to rise from $62.00 to $65.00 per share over the next year.You know that the annual return on the S&P 500 has been 10% and the 90-day T-bill rate has been yielding 6% per year over the past 10 years.If beta for Zip is 0.9,will you purchase the stock?

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

Interpret financial data to determine changes in market conditions or business strategies.

Calculate tax implications on purchases and understand tax rates.

Understand and apply discounts and markups in pricing strategies.

Calculate depreciation values and understand its impact on asset valuation.

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Definitions:

Personal Characteristics

Individual attributes, including personality traits, habits, and physical features, that define or distinguish one person from another.

Fundamental Attribution Error

The tendency to overestimate the effect of disposition or personality and underestimate the effect of situation in explaining social behavior.

Situational Factors

External influences that affect an individual's behavior and decision-making process in various environments.

Individual Factors

Personal attributes or characteristics that can influence behavior, decisions, and outcomes.