Question
13. Assume risk free rate is 4% and the market risk premium is 8%, using CAPM determine whether each stock shown below is underpriced, over-priced,
13.
Assume risk free rate is 4% and the market risk premium is 8%, using CAPM determine whether each stock shown below is underpriced, over-priced, or correctly-priced?
| Stock | Beta | Expected return |
| A | 1.50 | 14% |
| B | 0.50 | 6% |
| A is under-priced; B is under-priced | ||
| A is over-priced; B is under-priced | ||
| A is under-priced; B is over-priced | ||
| A is over-priced; B is over-priced | ||
| A is correctly priced; B is correctly priced |
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Personal Finance
Authors: Vickie L Bajtelsmit
1st Edition
0470905158, 9780470905159
