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

---

Definitions:

False News

Information that is fabricated and disseminated with the intention to deceive or mislead.

Nuclear Bomb

A weapon of mass destruction that derives its destructive force from nuclear reactions, either fission or a combination of fission and fusion.

Commonly Accepted Idea

A belief, notion, or opinion that is widely accepted or held to be true by the majority.

Hindsight Bias

The tendency to believe, after an event has occurred, that one would have predicted or expected the outcome, known also as the "knew-it-all-along" effect.