Security X Has an Expected Rate of Return of 13

question 1

Multiple Choice

Security X has an expected rate of return of 13% and a beta of 1.15. The risk-free rate is 5%, and the market expected rate of return is 15%. According to the capital asset pricing model, security X is ________.

• A) fairly priced
• B) overpriced
• C) underpriced
• D) none of these answers

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Definitions:

Latent Learning

A form of learning that occurs without immediate reinforcement and is not demonstrated until there is motivation to do so.

Learned Helplessness

An instance where someone is plagued by feelings of powerlessness, triggered by a traumatic experience or repeated failures to achieve success.

Environment

The surroundings or conditions in which a person, animal, or plant lives or operates.

Inoculating

The process of introducing a vaccine into the body to produce immunity to a specific disease.