A Stock Has a Beta of 1

question 88

Multiple Choice

A stock has a beta of 1.25.The risk free rate is 5% and the return on the market is 6%.The estimated return for the stock is 14%.According to the CAPM you should

• A) Sell because it is overvalued.
• B) Sell because it is undervalued.
• C) Buy because it overvalued.
• D) Buy because it is undervalued.
• E) Short because it is undervalued.

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Definitions:

Price Increase

A rise in the cost of goods or services, often measured as a percentage of the previous price.

Insured For Health Care

Individuals who have health insurance coverage, protecting them against high medical expenses.

Multinational Corporation

A large company that operates in several countries around the world, managing production or delivering services in multiple nations.

Minimum-wage Teenager

A teenager employed at the minimum legal wage, often used in discussions on labor economics and employment policies.