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An analyst gathers the following data: * Expected (estimated) rate of return on the market = 15% * Risk Free Rate = 8% * Expected (estimated) rate of return on stock X = 17% * Stock X's beta = 1.75 Using these data and the capital asset pricing model, which of the following statements about X's stock is true? Stock X is:

An analyst gathers the following data: * Expected (estimated) rate of return on the market = 15% * Risk Free Rate = 8% * Expected (estimated) rate of return on stock X = 17% * Stock X's beta = 1.75 Using these data and the capital asset pricing model, which of the following statements about X's stock is true? Stock X is:

Financial Management: Theory & Practice
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter6: Risk And Return
Section: Chapter Questions
Problem 14P: You have observed the following returns over time: Assume that the risk-free rate is 6% and the...
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An analyst gathers the following data:

* Expected (estimated) rate of return on the market = 15%

* Risk Free Rate = 8%

* Expected (estimated) rate of return on stock X = 17%

* Stock X's beta = 1.75

Using these data and the capital asset pricing model, which of the following statements about X's stock is true? Stock X is:

a.

properly valued

b.

overvalued by 1.75%

c.

undervalued by 1.40%

d.

undervalued by 0.25%

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