The Common Stock of Alpha Manufacturers Has a Beta of 1.47

question 1

Multiple Choice

The common stock of Alpha Manufacturers has a beta of 1.47 and an actual expected return of 15.26 percent. The risk-free rate of return is 4.3 percent and the market rate of return is 12.01 percent. Which one of the following statements is true given this information?

• A)The actual expected stock return will graph above the Security Market Line.
• B)The stock is underpriced.
• C)To be correctly priced according to CAPM, the stock should have an expected return of 21.95 percent.
• D)The stock has less systematic risk than the overall market.
• E)The actual expected stock return indicates the stock is currently overpriced.

---

Definitions:

Concrete Operational Thinking

A stage in cognitive development where children are able to think logically about concrete events but have difficulty understanding abstract concepts.

Cultural Practice

Rituals, traditions, or behaviors that are characteristic of a particular community, society, or ethnic group.

Underdeveloped Abilities

Skills or capabilities that have not yet achieved their full potential or expected level of maturity in an individual.

Distractibility

The extent to which external stimuli or unrelated thoughts can divert an individual's attention from the task at hand.