Question
Stock FM has a historical return of 14.25%, a standard deviation of 14.1% and a correlation of 0.51 with the market. The standard deviation of
Stock FM has a historical return of 14.25%, a standard deviation of 14.1% and a correlation of 0.51 with the market. The standard deviation of market returns is 19.1% and the expected return is 15.13%. The rick free rate is 5.63%. Which of the following statements is correct assuming CAPM holds? (Please retain at least 4 decimal places in your calculations and at least 2 decimal places in the final answer)
a. stock FM is overpriced with a required rate of return of 9.21%
b. stock FM is underpriced with a required rate of return of 9.21%
c. stock FM is overpriced with a required rate of return of 10.48%
d. stock FM is underpriced with a required rate of return of 10.48%
e. insufficient information
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