The Risk-Free Rate Is 4

question 21

Multiple Choice

The risk-free rate is 4.2 percent and the expected return on the market is 12.3 percent.Stock A has a beta of 1.2 and an expected return of 13.1 percent.Stock B has a beta of 0.75 and an expected return of 11.4 percent.Are these stocks correctly priced? Why or why not?

• A)No, Stock A is underpriced and Stock B is overpriced.
• B)No, Stock A is overpriced and Stock B is underpriced.
• C)No, Stock A is overpriced but Stock B is correctly priced.
• D)No, Stock A is underpriced but Stock B is correctly priced.
• E)Yes, both stocks are correctly priced.

---

Definitions:

Brown Pelicans

A species of large water birds known for their distinctive pouches under their beaks and their spectacular diving feeding behavior.

Everglades National Park

A U.S. National Park in Florida known for its large wetlands, diverse ecosystems, and wildlife, including endangered species.

Zoological Scientists

Researchers and experts who study the behavior, genetics, and ecology of animals within a zoological context.

Special Refrigerator

A cooling appliance designed for specific storage needs such as maintaining precise temperatures or humidity levels for specialized items.