Your opinion is that Boeing has an expected rate of return of 0.112. It has a beta of 0.92. The risk-free rate is 0.04 and the market expected rate of return is 0.10. According to the Capital Asset Pricing Model, this security is
A) underpriced.
B) overpriced.
C) fairly priced.
D) Cannot be determined from data provided.

Question

Quizplus · Accepted Answer

The Capital Asset Pricing Model (CAPM) formula is: Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the given values: 0.112 = 0.04 + 0.92 * (0.10 - 0.04), which simplifies to 0.112 = 0.04 + 0.0552. The calculated expected return (0.0952) is less than the given expected return (0.112), indicating that Boeing is underpriced according to CAPM.

Your Opinion Is That Boeing Has an Expected Rate of Return