You are analyzing a stock that has a beta of 1.19. The risk-free rate is 4.4% and you estimate the market risk premium to be6.6%. If you expect the stock to have a return of 9.8% over the next year, should you buy it? Why or why not?The expected return according to the CAPM is%. (Round to two decimal places.)Should you buy the stock? (Select the best choice below.)O A. Yes, because the expected return based on the beta is equal to or less than the return on the stock.O B. No, because the expected return based on the beta is greater than the return on the stock.

The expected return can be calculated as follows : Calculations for above :

Answered: pect the stock to have a retu eturn…

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pect the stock to have a retu eturn according to the CAP the stock? (Select the bes

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 8P: A stock is trading at $80 per share. The stock is expected to have a yearend dividend of $4 per...

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Question

You are analyzing a stock that has a beta of 1.19. The risk-free rate is 4.4% and you estimate the market risk premium to be
6.6%. If you expect the stock to have a return of 9.8% over the next year, should you buy it? Why or why not?
The expected return according to the CAPM is%. (Round to two decimal places.)
Should you buy the stock? (Select the best choice below.)
O A. Yes, because the expected return based on the beta is equal to or less than the return on the stock.
O B. No, because the expected return based on the beta is greater than the return on the stock.

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