The risk-free rate is 4%. The expected market rate of return is 11%. If you expect CAT with a beta of 1.0 to offer a rate of return of 11%, you should
A) buy CAT because it is overpriced.
B) sell short CAT because it is overpriced.
C) sell short CAT because it is underpriced.
D) buy CAT because it is underpriced.
E) None of the options, as CAT is fairly priced.

Question

Quizplus · Accepted Answer

Given CAT's beta of 1.0, its expected rate of return aligns with the market rate of return (11%), indicating it is fairly priced according to the Capital Asset Pricing Model (CAPM).

The Risk-Free Rate Is 4