14 -

Which one of the following stocks is correctly priced if the risk-free rate of return is 2.6 percent and the market risk premium is 7.50 percent?

Stock Beta Expected Return

A 0.72 8.63%

B 1.50 13.80%

C 1.39 13.03%

D 1.05 10.70%

E 0.96 9.95%

a) Stock A

b) Stock B

c) Stock C

d) Stock D

e) Stock E