Assume the following data for a stock: Beta = 0.9; Risk-free rate = 4%; Market rate of return = 14%; and Expected rate of return on the stock = 13%.Then the stock is:
A)overpriced.
B)underpriced.
C)correctly priced.
D)cannot be determined.

Question

Quizplus · Accepted Answer

The stock is correctly priced because the expected rate of return (13%) is equal to the required rate of return (4% + 0.9 * (14% - 4%) = 13%).

Assume the Following Data for a Stock: Beta = 0