A Stock Has a Beta of 1

question 4

Multiple Choice

A stock has a beta of 1.25. The risk-free rate is 5 percent and the return on the market is 6 percent. The estimated return for the stock is 14 percent. According to the CAPM, you should

• A) sell because it is overvalued.
• B) sell because it is undervalued.
• C) buy because it overvalued.
• D) buy because it is undervalued.
• E) short because it is undervalued.

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Definitions:

Starting Current

The initial surge of current experienced when an electric motor starts, typically much higher than the running or nominal current.

Differential Selsyn

A special type of selsyn motor.

Stator Windings

The stationary winding part in a motor or generator where the main magnetic field interacts with armature windings to produce rotation or induce current.

Rotor

The rotating part of an electrical or mechanical machine, such as the rotating shaft in a motor or generator.