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:

Cyclohexane

A saturated hydrocarbon with the chemical formula C6H12, commonly used as a solvent or in the manufacture of other chemicals.

Methylcyclohexane

A saturated hydrocarbon with the formula C7H14, characterized by a methyl group attached to a cyclohexane ring, used as a solvent and in organic synthesis.

Cycloheptane

A cyclic alkane with the molecular formula C7H14, consisting of a ring of seven carbon atoms.

Phenol

An aromatic organic compound with the formula C6H5OH, used as an antiseptic and a raw material in the synthesis of plastics.