Which One of the Following Shares Is Correctly Priced (Rounded

question 87

Multiple Choice

Which one of the following shares is correctly priced (rounded up to one decimal place) if the risk-free rate of return is 2.5 % and the market risk premium is 8%?
$\begin{array} { | l | l | l | } \hline \text { Share } & \text { Beta } & \text { Expected Return } \\\hline \text { A } & 68 & 8.2 \% \\\hline B & 1.42 & 13.9 \% \\\hline \text { C } & 1.23 & 11.8 \% \\\hline \text { D } & 1.31 & 12.6 \% \\\hline \text { E } & 94 & 9.7 \% \\\hline\end{array}$

• A)A
• B)B
• C)C
• D)D
• E)E

---

Definitions:

Common Stock

A type of equity security that represents ownership in a corporation, with rights to vote on corporate matters and receive dividends.

Cash Dividends

Payments made by a company out of its profits to its shareholders, distributed as a fixed amount per share.

Stockholders' Equity

The residual interest in the assets of a corporation after deducting liabilities, representing ownership equity in the company.