The Common Stock of Alpha Manufacturers Has a Beta of 1.14

question 14

Multiple Choice

The common stock of Alpha Manufacturers has a beta of 1.14 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 underpriced.

---

Definitions:

Biological Rhythms

Innate, cyclical patterns in biological processes and behaviors observed in living organisms, including circadian rhythms and seasonal cycles.

Peripheral Nervous System

The part of the nervous system that consists of the nerves and ganglia outside of the brain and spinal cord.

Conditioned Response

A conditioned response is a learned reaction or response to a previously neutral stimulus that has become significant through association.

Unconditioned Response

An automatic, natural response to a stimulus that does not require previous conditioning or learning.