Assume the following data for a stock: Beta = 0.9; risk-free rate = 4 percent; market rate of return = 14 percent; and expected rate of return on the stock = 13 percent. Then the stock is
A)overpriced.
B)underpriced.
C)correctly priced.
D)The answer cannot be determined.

Question

Quizplus · Accepted Answer

The stock is correctly priced because the expected rate of return (13%) is equal to the required rate of return (rf + beta * (rm - rf) = 4% + 0.9 * (14% - 4%) = 13%).

Assume the Following Data for a Stock: Beta = 0