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The risk-free rate is 2.0 percent and the expected return on the market is 12.0 percent. Stock A has a beta of 1.5 and an
The risk-free rate is 2.0 percent and the expected return on the market is 12.0 percent. Stock A has a beta of 1.5 and an expected return of 15.0 percent. Stock B has a beta of 0.5 and an expected return of 5.0 percent. Are these stocks correctly priced? If not how much are the stocks overpriced or underpriced? No, both stocks are overpriced by 2 percent No, both stocks are overpriced by 1 percent Yes, both stocks are correctly priced No, both stocks are underpriced by 1 percent No, both stocks are underpriced by 2 percent
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