Wilson Farms' Stock Has a Beta of

question 40

Multiple Choice

Wilson Farms' stock has a beta of .84 and an expected return of 7.8 percent.The risk-free rate is 2.6 percent and the market risk premium is 6 percent.This stock is ________ because the CAPM return for the stock is ________ percent.

• A) undervalued; 7.34
• B) undervalued; 7.49
• C) undervalued; 7.64
• D) overvalued; 7.34
• E) overvalued; 7.49

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Definitions:

Physical Growth

The process by which a living organism increases in size and matures in physical characteristics.

Habituation

The psychological process through which an individual becomes accustomed to a stimulus and hence reacts less strongly over time.

Stimulus

Any external event or circumstance that provokes a sensory or behavioral response in an organism.

Operant Conditioning

Learning in which changes in behavior are shaped by the consequences of that behavior, thereby giving rise to new and more complete behaviors.