Which One of the Following Stocks Is Correctly Priced If

question 91

Multiple Choice

Which one of the following stocks is correctly priced if the risk-free rate of return is 3.2 percent and the market rate of return is 11.76 percent? $$\begin{array} { c c c } \text { Stock } & \text { Beta } & \text { Expected Return } \\\text { A } & 0.87 & 11.03 \% \\\text { B } & 1.09 & 12.50 \% \\\text { C } & 1.18 & 13.21 \% \\\text { D } & 1.34 & 15.02 \% \\\text { E } & 1.62 & 17.07 \%\end{array}$$

• A)A
• B)B
• C)C
• D)D
• E)E

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Definitions:

Acquisition Differential

The difference between the cost of the acquisition and the fair value of the net assets acquired in a business combination.

Equity Method

An accounting technique used by a company to record its investment in another company when it has significant influence but not full control.

Unamortized

Describes a portion of a loan or bond or other asset that has not yet been written off or paid down through periodic payments.

Patents

Legal rights granted to inventors, allowing them exclusive use and exploitation of their inventions for a certain period.