The Risk-Free Rate Is 4

question 24

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 0.87 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.

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Definitions:

Rapid Cycling

In the context of bipolar disorder, a pattern of four or more mood episode changes within a year.

Mania

A state of abnormally elevated or irritable mood, arousal, and/or energy levels, often seen in bipolar disorder, that can impair functioning.

Sociocultural Factors

Elements that influence an individual's behavior and attitudes based on the culture and society in which they live.

Cognitive Factors

Elements related to mental processes such as perception, memory, and problem-solving that influence behavior and emotion.