A company announces that its earnings have increased 25 percent from the previous year, but analysts actually expected a 50 percent increase. What is the likely effect on the stock price?

a. The stock price will increase.

b. The stock price will increase, decrease, or remain constant.

c. The stock price will increase or decrease.

d. The stock price will not be affected.

e. The stock price will decrease

Taylor, Inc., stock has a beta of 0.8 and an expected return of 9.3 percent. The risk-free rate is 2.1 percent and the market risk premium is 6.8 percent. This stock is _____ because the CAPM return for the stock is _____ percent.

a. undervalued; 5.44

b. undervalued; 7.54

c. overvalued; 5.86

d. undervalued; 5.86

e. overvalued; 7.54