Which one of the following stocks is correctly priced if the risk-free rate of return is 3.2 percent and the market rate of return is 11.76 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 3.2 percent and the market rate of return is 11.76 percent? 
A)A 
B)B 
C)C 
D)D

Quizplus · Accepted Answer

E(r)_A = 0.0354 + [0.87 × (0.1176 - 0.0354)] = 0.1069E(r)_B = 0.0354 + [1.09 × (0.1176 - 0.0354)] = 0.1250 Stock B is correctly priced.E(r)_C = 0.0354 + [1.18 × (0.1176 - 0.0354)] = 0.1324E(r)_D = 0.0354 + [1.34 × (0.1176 - 0.0354)] = 0.1456E(r)_E = 0.0354 + [1.62 × (0.1176 - 0.0354)] = 0.1686

Which One of the Following Stocks Is Correctly Priced If