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The risk free rate of return is 3.4%; the expected return of the market portfolio is 12.2% and the beta of Stock A is 1.36. An analyst has estimated that the expected return of Stock A is 14.87%. According to the Capital Asset Pricing Model, Stock is Underpriced because its expected return should be 15.37 percent according to the CAPM Overpriced because its expected return should be 15.37 percent according to the CAPM Overpriced because its expected return should be 19.99 percent according to the CAPM Underpriced because its expected return should be 19.99 percent according to the CAPM

The risk free rate of return is 3.4%; the expected return of the market portfolio is 12.2% and the beta of Stock A is 1.36. An analyst has estimated that the expected return of Stock A is 14.87%. According to the Capital Asset Pricing Model, Stock is Underpriced because its expected return should be 15.37 percent according to the CAPM Overpriced because its expected return should be 15.37 percent according to the CAPM Overpriced because its expected return should be 19.99 percent according to the CAPM Underpriced because its expected return should be 19.99 percent according to the CAPM

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 15P
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The risk free rate of return is 3.4%; the expected return of the market portfolio is 12.2% and the beta of Stock A is 1.36. An analyst has estimated that the expected return of Stock A is 14.87%. According to the Capital Asset Pricing Model, Stock is Underpriced because its expected return should be 15.37 percent according to the CAPM Overpriced because its expected return should be 15.37 percent according to the CAPM Overpriced because its expected return should be 19.99 percent according to the CAPM Underpriced because its expected return should be 19.99 percent according to the CAPM
Transcribed Image Text:The risk free rate of return is 3.4%; the expected return of the market portfolio is 12.2% and the beta of Stock A is 1.36. An analyst has estimated that the expected return of Stock A is 14.87%. According to the Capital Asset Pricing Model, Stock is Underpriced because its expected return should be 15.37 percent according to the CAPM Overpriced because its expected return should be 15.37 percent according to the CAPM Overpriced because its expected return should be 19.99 percent according to the CAPM Underpriced because its expected return should be 19.99 percent according to the CAPM
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