4. Within the context of the capital asset pricing model (CAPM), assume:

• Expected return on the market  15%.

• Risk-free rate  8%.

• Expected rate of return on XYZ security  17%.

• Beta of XYZ security  1.25.

Which one of the following is correct?

a. XYZ is overpriced.

b. XYZ is fairly priced.

c. XYZ’s alpha is
.25%.

d. XYZ’s alpha is .25%.