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Asset E(R) Std. deviation A 17% 50% Market (M) 10% 20% Above is the expected return and standard deviation of a stock A and the

Asset

E(R)

Std. deviation

A

17%

50%

Market (M)

10%

20%

Above is the expected return and standard deviation of a stock A and the market portfolio. The correlation coefficient between A and the market portfolio (M) is 0.5. The risk-free rate is 4%

Based on CAPM, stock A is ____________ because it offers an alpha of ____________.

A.

underpriced; 7%

B.

underpriced; 5.5%

C.

overpriced; 5.5%

D.

underpriced; 0.5%

E.

overpriced; -0.5%

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