An Asset Has a Beta of 2

question 21

Multiple Choice

An asset has a beta of 2.0 and an expected return of 20%.The expected risk premium on the market portfolio is 5% and the risk-free is 7%.The stock is

• A) overpriced
• B) underpriced
• C) appropriately priced
• D) Cannot tell from the given information

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Definitions:

Wholesaler

A person or company that sells goods in large quantities at low prices, typically to retailers rather than directly to end users.

Rack Jobber

A merchandising agent or vendor who rents space within retail stores to sell goods, often responsible for managing inventory and setup.

Consignment

A supply arrangement where goods are left with a third party to sell, but the ownership remains with the supplier until sold.