1. Which of the following is correct?

a) If required rate of return is greater than your expected rate of return, you are paying a price greater than the value of the stock.

b) If you pay a fair price for a stock (price= value), your expected return will be equal to your required rate of return.

c) If price is higher than the value of a stock, your expected return will be higher than your required rate of return.

2. Which of the following is correct?

a) A stock that has a price lower than its value is considered to be underpriced.

b) If you buy a stock that has a price lower than its value, your expected return will be lower than your required rate of return.