Suppose you are considering buying a stock. The stock is currently trading for $30. You expect the price in one year to be $34 and it will pay a dividend of $1. You estimate the stocks beta at 1.5, the risk-free rate at 1%, and the expected return on the market at 8%. According to the CAPM, should you consider purchasing this stock?

a) The required return is 11.5% and the expected return is 16.67%. You should consider buying the stock.

b) The required return is 16.67% and the expected return is 11.5%. You should not consider buying the stock.

c) The required return is 15.2% and the expected return is 18.8%. You should consider buying the stock.

d)The required return is 18.8% and the expected return is 15.2%. You should consider buying the stock.

Question 26