USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Stocks A $\lambda$

question 123

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Stocks A, B, and C have two risk factors with the following beta coefficients. The zero-beta return ( $\lambda$ 0) = .025 and the risk premiums for the two factors are ( $\lambda$ 1) = .12 and ( $\lambda$ 0) = .10.

-Refer to Exhibit 7.10. Suppose that you know that the prices of stocks A, B, and C will be $10.95, 22.18, and $30.89, respectively. Based on this information,

• A) all three stocks are overvalued.
• B) all three stocks are undervalued.
• C) stock a is undervalued, stock b is properly valued, and stock c is undervalued.
• D) stock a is undervalued, stock b is properly valued, and stock c is overvalued.
• E) stock a is overvalued, stock b is overvalued, and stock c is undervalued.

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