22 OLG stock has a beta of 0.98 and an expected return of 10.52 percent. The risk-free rate of return is 3.02 percent, and the market rate of return is 10.47 percent. Which one of the following statements is true given this information? A OLG stock is overpriced. B. OLG stock is correctly priced. C The return on OLG stock will graph above the security market line. D. The expected return on OLG stock based on the capital asset pricing model is 10.13 percent.
22 OLG stock has a beta of 0.98 and an expected return of 10.52 percent. The risk-free rate of return is 3.02 percent, and the market rate of return is 10.47 percent. Which one of the following statements is true given this information? A OLG stock is overpriced. B. OLG stock is correctly priced. C The return on OLG stock will graph above the security market line. D. The expected return on OLG stock based on the capital asset pricing model is 10.13 percent.
Chapter8: Risk And Rates Of Return
Section: Chapter Questions
Problem 17PROB
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Concept explainers
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
Transcribed Image Text:22 OLG stock has a beta of 0.98 and an expected return of 10.52 percent. The risk-free rate of return is
3.02 percent, and the market rate of return is 10.47 percent. Which one of the following statements is
true given this information?
A₁
OLG stock is overpriced.
B.
OLG stock is correctly priced.
C
The return on OLG stock will graph above the security market line.
D The expected return on OLG stock based on the capital asset pricing model is 10.13 percent.
A
B
OC
D
O
O
O
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