Suppose the Beta of the Stock of Microsoft, Inc $\beta$ _msft=1

question 6

Multiple Choice

Suppose the beta of the stock of Microsoft, Inc.is $\beta$ _msft=1.45.If r_f=4% and r_M=9%, what is the equilibrium expected return on Microsoft stock, r_msft, according to the CAPM? As an analyst of the firms in the high-technology industry, you expect Microsoft to provide a return of 10% over the next year.Comparing your estimate with equilibrium expected return on Microsoft that you just calculated, would you recommend to your investors that they buy Microsoft stock?

• A)Yes: Microsoft is underpriced
• B)No: Microsoft is overpriced

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Definitions:

Inventory Cost

The total cost associated with purchasing and preparing inventory for sale, including acquisition, storage, and preparation expenses.

External Auditors

Independent experts who evaluate a company's financial statements to ensure accuracy, compliance, and fairness in reporting.

Management

The process of planning, organizing, leading, and controlling resources within an organization to achieve its objectives.

Gross Profit

Gross Profit is the revenue from sales minus the cost of goods sold, indicating the profitability of a company before accounting for operating expenses, interest, and taxes.