The Market Rate of Return Is 11 Percent and the Risk-Free

question 39

Multiple Choice

The market rate of return is 11 percent and the risk-free rate of return is 3 percent.Lexant stock has 3 percent less systematic risk than the market and has an actual return of 12 percent.This stock:

• A)is underpriced.
• B)is correctly priced.
• C)will plot below the security market line.
• D)will plot on the security market line.
• E)will plot to the right of the overall market on a security market line graph.

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Definitions:

Price Of Pencils

The amount of money required to purchase a pencil, determined by factors such as production costs, demand, and supply.

Price Ceiling

A government-imposed limit on how high a price can be charged on a product or service, intended to protect consumers from conditions that could make necessary goods unaffordable.

Maximum Price

A ceiling price set by an authority, above which the sale of a good or service is not allowed.

Market Price

The current price at which a good or service can be bought or sold in a given market.