Your opinion is that Boeing has an expected rate of return of 0.08. It has a beta of 0.92. The risk-free rate is 0.04 and the market expected rate of return is 0.10. According to the Capital Asset Pricing Model, this security is
A) underpriced.
B) overpriced.
C) fairly priced.
D) Cannot be determined from data provided.

Question

Quizplus · Accepted Answer

According to the Capital Asset Pricing Model (CAPM), the expected return should be calculated as: Risk-free rate + Beta * (Market return - Risk-free rate) = 0.04 + 0.92 * (0.10 - 0.04) = 0.0952. Since the expected return of 0.08 is less than 0.0952, the security is overpriced.

Your Opinion Is That Boeing Has an Expected Rate of Return