Which One of the Following Stocks Is Correctly Priced According

question 32

Multiple Choice

Which one of the following stocks is correctly priced according to CAPM if the risk-free rate of return is 3.4 percent and the market risk premium is 7.4 percent? $\begin{array}{ccc}&& \text { Expected } \\\text { Stock } & \text { Beta } & \text { Retumn } \\\mathrm{A} & .87 & .096 \\\mathrm{~B} & 1.09 & .102 \\\mathrm{C} & 1.62 & .146 \\\mathrm{D} & .98 & .107 \\\mathrm{~F} & 1.16 &. 139\end{array}$

• A) A
• B) B
• C) C
• D) D
• E) E

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Definitions:

Decrease

The act or process of becoming smaller in size, amount, number, or level.

Profitability

A measure of the efficiency and financial performance of a company, indicating the ability to generate income from operations.

Accounts Receivable Turnover

This is a financial ratio that measures how effectively a company collects debts from its credit customers, indicating the number of times average accounts receivable are collected during a period.

Sales In Receivables

Accounts receivable that result from sales transactions, indicating the amount of money customers owe a company.