1.The market rate of return is 11 percent and the risk-free rate of return is 3 percent. Lexant stock has the samesystematic risk (Beta=1) than the market and has an actual return of 12 percent. This stock:

a.is underpriced.

b.is correctly priced.

c.will plot below the security market line.

d.will plot on the security market line.

2.

The risk-free rate of return is 3.9 percent and the market risk premium is 6.2 percent. What is the expected rate of return on a stock with a beta of 1.21? (enter your solution as x.xx% without the % sign)

3.

The common stock of Alpha Manufacturers has a beta of 1.14 and an actual expected return of 15.26 percent. The risk-free rate of return is 4.3 percent and the market rate of return is 12.01 percent. Which one of the following statements is true given this information?

a.The actual expected stock return will graph below the Security Market Line.

b.The stock is overpriced.

c.To be correctly priced according to CAPM, the stock should have an expected return of 21.95 percent.

d.The stock has less systematic risk than the overall market.

e.The actual expected stock return indicates the stock is currently underpriced.