Recently Your Broker Has Advised You That He Believes That

question 78

Multiple Choice

Recently your broker has advised you that he believes that the stock of Casey Incorporated is going to rise from $55.00 to $70.00 per share over the next year. You know that the annual return on the S&P 500 has been 12.5 percent and the 90-day T-bill rate has been yielding 6 percent per year over the past 10 years. If beta for Casey is 1.3, will you purchase the stock?

• A) Yes, because it is overvalued.
• B) Yes, because it is undervalued.
• C) No, because it is undervalued.
• D) No, because it is overvalued.
• E) Yes, because the expected return equals the estimated return.

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Definitions:

Behavioral Economics

A field of economics that studies the effects of psychological, social, cognitive, and emotional factors on the economic decisions of individuals and institutions.

Relevant Information

Data or facts that are pertinent and useful for decision-making, particularly in the context of solving specific problems or achieving objectives.

Responsible Business Conduct

Ethical and socially aware business practices that take into account their impact on the environment, consumers, employees, communities, and stakeholders.

International Monetary Fund

An international organization aimed at promoting global monetary cooperation and exchange rate stability.