Which one of the following stocks is correctly priced if the risk-free rate of return is 3.7 percent and the market risk premium is 8.8 percent?

A)A
B)B
C)C
D)D

Question

Which one of the following stocks is correctly priced if the risk-free rate of return is 3.7 percent and the market risk premium is 8.8 percent?

A)A 
B)B 
C)C 
D)D

Quizplus · Accepted Answer

E(r)_A = 0.037 + (0.64 × 0.088) = 0.0933E(r)_B = 0.037 + (0.97 × 0.088) = 0.1224E(r)_C = 0.037 + (1.22 × 0.088) = 0.1444 Stock C is correctly priced.E(r)_D = 0.037 + (1.37 × 0.088) = 0.1576E(r)_E = 0.037 + (1.68 × 0.088) = 0.1848

Which One of the Following Stocks Is Correctly Priced If