Home Interior's Stock Has an Expected Return of 13

question 47

Multiple Choice

Home Interior's stock has an expected return of 13.2 percent and a beta of 1.28.The market return is 10.7 percent and the risk-free rate is 2.8 percent.This stock is _____ because the CAPM return for the stock is _____ percent.

• A)greatly overvalued; 16.50
• B)slightly overvalued; 12.91
• C)priced correctly; 12.89
• D)slightly undervalued; 12.91
• E)greatly undervalued; 16.50

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Definitions:

Special Knowledge

refers to specific expertise or understanding unique to a particular subject, task, or field.

Design Choices

Decisions made in the process of creating a product, system, or service, impacting its functionality, aesthetics, and user experience.

Quality Checks

Procedures or measures taken to ensure that a product or service meets certain standards of quality and is free of defects.

Hierarchy

An organized system where people or parties are classified in a sequence based on their authority or prestige.