Your Personal Opinion Is That a Security Has an Expected

question 3

Multiple Choice

Your personal opinion is that a security has an expected rate of return of 0.11. It has a beta of 1.5. The risk-free rate is 0.05 and the market expected rate of return is 0.09. According to the Capital Asset Pricing Model, this
Security is

• A) underpriced.
• B) overpriced.
• C) fairly priced.
• D) Cannot be determined from data provideD.11% = 5% + 1.5(9% - 5%) = 11.0%; therefore, the security is fairly priced.

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Definitions:

Spanish Empire

The Spanish Empire was one of the largest empires in world history and was among the first global empires, extending across the Americas, parts of Europe, Africa, and Asia from the late 15th to the early 19th century.

Ancient Roman Empire

A vast empire that existed from 27 B.C. to A.D. 476 in the Mediterranean region, known for its military power, architectural innovations, and contribution to law.

Permanent Settlement

A long-term or indefinite living arrangement in a specific location, often implying the establishment of communities or civilizations.

Hispaniola

An island in the Caribbean, which is currently shared by two sovereign nations: the Dominican Republic and Haiti.