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In a given year, T-bills return 3.8% and the market is expected to return 13.5%. The stock return that is realized for a firm with
In a given year, T-bills return 3.8% and the market is expected to return 13.5%. The stock return that is realized for a firm with a beta of 1.32 is 15.0% in this year. According to CAPM, which one of these statements is correct given this information?
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The stock is currently overpriced.
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The stock plots above the security market line.
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The risk premium on the stock is too high given the stock's beta.
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The stock plots to the left of the market on a security market line graph
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