Assume the Market Rate of Return Is 10

question 55

Multiple Choice

Assume the market rate of return is 10.1 percent and the risk-free rate of return is 3.2 percent. Lexant stock has 2 percent less systematic risk than the market and has an actual return of 10.2 percent. This stock:

• A) is underpriced.
• B) is correctly priced.
• C) will plot below the security market line.
• D) will plot on the security market line.
• E) will plot to the right of the overall market on a security market line graph.

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