A Friend Has Some Reliable Information That the Stock of Puddles

question 93

Multiple Choice

A friend has some reliable information that the stock of Puddles Company is going to rise from $43.00 to $50.00 per share over the next year.You know that the annual return on the S&P 500 has been 11% and the 90-day T-bill rate has been yielding 5% per year over the past 10 years.If beta for Puddles is 1.5,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.

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