The Common Stock of Alpha Manufacturers Has a Beta of 1.24

question 68

Multiple Choice

The common stock of Alpha Manufacturers has a beta of 1.24 and an actual expected return of 13.25 percent. The risk-free rate of return is 3.7 percent and the market rate of return is 11.78 percent. Which one of the following statements is true given this information?

• A) The actual expected stock return will graph above the security market line.
• B) The stock is currently underpriced.
• C) To be correctly priced according to CAPM, the stock should have an expected return of 13.56 percent.
• D) The stock has less systematic risk than the overall market.
• E) The actual expected stock return indicates the stock is currently overpriced.

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Definitions:

Social Attachment Styles

Refers to the patterns of attachment behavior exhibited by individuals, which affect their relationships and interactions with others.

Rorschach Test

A psychological test in which subjects' perceptions of inkblots are recorded and then analyzed using psychological interpretation.

Demonstrated Validity

The extent to which evidence and theory support the interpretations of test scores for intended purposes.

Hermann Rorschach

A Swiss psychiatrist known for creating the Rorschach inkblot test, a projective psychological test measuring underlying thought disorder and personality structure.