Your opinion is that Boeing has an expected rate of return of 0.0952. 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 used to determine the expected return of an asset, which is given by: Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the given values: 0.04 + 0.92 * (0.10 - 0.04) = 0.0952, which matches the expected rate of return provided for Boeing. This means Boeing is fairly priced according to CAPM.

Your Opinion Is That Boeing Has an Expected Rate of Return