Exhibit 93
Use the Information Below for the Following Problem(S)
Stocks

question 53

Multiple Choice

Exhibit 9.3
Use the Information Below for the Following Problem(S)
Stocks A, B, and C have two risk factors with the following beta coefficients. The zero-beta return (??) = .025 and the risk premiums for the two factors are (??) = .12 and (??) = .10.
$$\begin{array} { c c c } \text { Stack } & \text { Factor } 1 w _ { i 1 } & \text { Factor } 2 w _ { i 2 } \\\hline \mathrm { A } & - 0.25 & 1.1 \\\mathrm {~B} & - 0.05 & 0.9 \\\mathrm { C } & 0.01 & 0.6\end{array}$$
-Refer to Exhibit 9.3.Suppose that you know that the prices of stocks A,B,and C will be $10.95,22.18,and $30.89,respectively.Based on this information

• A) All three stocks are overvalued.
• B) All three stocks are undervalued.
• C) Stock a is undervalued, stock b is properly valued, stock c is undervalued.
• D) Stock a is undervalued, stock b is properly valued, stock c is overvalued.
• E) Stock a is overvalued, stock b is overvalued, stock c is undervalued.

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Definitions:

Money Supply

The overall available monetary assets within an economy at a designated time.

Nominal Variables

Variables measured in monetary units.

Price Level

The average of current prices across the entire spectrum of goods and services produced in the economy, indicating the cost of living or inflation.

Interest Rate

The percentage at which interest is paid by a borrower for the use of money that they borrow from a lender.