QUESTION 1

1. Assume the following data for a stock: beta = 0.9; risk-free rate = 4 percent; market rate of return = 24 percent; and expected rate of return on the stock = 23 percent. Then the stock is:

		correctly priced.
		overpriced. this is the wrong answer
		underpriced.
		The answer cannot be determined.

QUESTION 2

1. Assume the following data for a stock: beta = 1.5; risk-free rate = 8 percent; market rate of return = 18 percent; and expected rate of return on the stock = 22 percent. Then the stock is:

		overpriced.
		underpriced. this is the wrong answer
		correctly priced.
		cannot be determined.