The risk-free rate for the next year is 2%, and the market risk premium is expected to be 5%. The beta of XXL stock is 1.25. If you believe that XXLs stock will actually return 7.5% over the next year, then according to the CAPM you should:

a.

buy the stock because it is under priced.

b.

sell the stock because it is overpriced.

c.

sell the stock because it is under priced.

d.

be indifferent between buying and selling the stock.