Which one of the following stocks is correctly priced if the risk-free rate of return is 3.6% and the market rate of return is 10.5%?
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 3.6% and the market rate of return is 10.5%? 
A)A 
B)B 
C)C 
D)D

Quizplus · Accepted Answer

E(r)_A = .036 + [.85 F1F1F1S1F1F1F10 (.105 - .036)] = .095E(r)_B = .036 + [1.08 F1F1F1S1F1F1F10 (.105 - .036)] = .111E(r)_C = .036 + [1.69 F1F1F1S1F1F1F10 (.105 - .036)] = .153 Stock C is correctly priced.E(r)_D = .036 + [.71 F1F1F1S1F1F1F10 (.105 - .036)] = .085E(r)_E = .036 + [1.45 F1F1F1S1F1F1F10 (.105 - .036)] = .136

Which One of the Following Stocks Is Correctly Priced If