The Risk-Free Rate Is 4

question 75

Multiple Choice

The risk-free rate is 4%. The expected market rate of return is 11%. If you expect CAT with a beta of 1.0 to offer a rate of return of 10%, you should

• A) buy CAT because it is overpriced.
• B) sell short CAT because it is overpriced.
• C) sell short CAT because it is underpriced.
• D) buy CAT because it is underpriced.
• E) None of the options, as CAT is fairly priced.