Assume the Risk-Free Rate of Return Is 6

question 10

Multiple Choice

Assume the risk-free rate of return is 6.5 percent and the market rate of return is 11.2 percent.Stock A with a beta of 0.88 and an expected return of 9.79 percent; Stock B with a beta of 1.26 and an expected return of 11.36 percent; Stock C with a beta of 1.47 and an expected return of 12.28 percent; Stock D with a beta of 0.79 and an expected return of 10.61 percent.Which one of the following stocks,if any,is correctly priced according to CAPM?

• A)Stock A
• B)Stock B
• C)Stock C
• D)Stock D
• E)None of the stocks are correctly priced according to CAPM.

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Definitions:

Current Awareness

The practice of staying informed on the latest developments within a particular area of interest.

Conscious Mind

The aspect of the mind that is aware of thoughts, feelings, and surroundings at any given moment, enabling conscious decision-making.

Ideas

Ideas are conceptual thoughts, imaginations, or propositions that arise in the mind as a result of mental activity.

Determining Factor

A critical element or condition that affects the outcome or development of a process or event.