Home Interior's Stock Has an Expected Return of 13

question 64

Multiple Choice

Home Interior's stock has an expected return of 13.25 percent and a beta of 1.4.The market return is 10.75 percent and the risk-free rate is 4.5 percent.This stock is ________ because the CAPM return for the stock is ________ percent.

• A) greatly overvalued; 16.50
• B) slightly overvalued; 14.91
• C) priced correctly; 13.25
• D) slightly undervalued; 12.91
• E) greatly undervalued; 16.50

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Definitions:

First Year

The initial 12-month period in a particular context, such as employment, schooling, or living in a new place.

Increased By

A phrase indicating that a quantity has been added to, usually in the context of arithmetic operations or describing growth in a financial metric.

Increased By

An expression denoting an addition or increment in value or quantity.

HST

Harmonized Sales Tax; a combined tax in some Canadian provinces that merges the federal goods and services tax (GST) and provincial sales tax (PST).