An asset is priced to earned a 10% annual return; the asset has a beta of 0.75. The market risk premium is 8% and the risk free rate is 4%. The asset is
A) cannot be determined with the information provided
B) correctly priced.
C) underpriced.
D) overpriced.

Question

Quizplus · Accepted Answer

The asset is correctly priced because its expected return is equal to the risk-free rate plus the market risk premium multiplied by the asset's beta.

An Asset Is Priced to Earned a 10% Annual Return;