Recently Your Broker Has Advised You That He Believes That

question 24

Multiple Choice

Recently your broker has advised you that he believes that the stock of Casey Incorporated is going to rise from $55.00 to $70.00 per share over the next year.You know that the annual return on the S&P 500 has been 12.5% and the 90-day T-bill rate has been yielding 6% per year over the past 10 years.If beta for Casey is 1.3,will you purchase the stock?

• A) Yes, because it is overvalued.
• B) Yes, because it is undervalued.
• C) No, because it is undervalued.
• D) No, because it is overvalued.
• E) Yes, because the expected return equals the estimated return.

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Definitions:

Income Statement

An accounting report that displays the income, costs, and overall profit of a business for a certain period.

Operating Activities

Day-to-day actions that are related to producing and delivering a company's primary goods and services, reflected in its income statement.

Investing Activity

Financial actions that involve purchasing or selling long-term assets and other investments, affecting the capital structure of an organization.

Financing Activity

Transactions and events that involve raising capital and repaying investors, including issuing equity, obtaining loans, and repaying debt, as part of the cash flow statement.