Which one of the following stocks is correctly priced if the risk-free rate of return is 2.5% and the market risk premium is 8%?
A)A
B)B
C)C
D)D

Question

Which one of the following stocks is correctly priced if the risk-free rate of return is 2.5% and the market risk premium is 8%? 
A)A 
B)B 
C)C 
D)D

Quizplus · Accepted Answer

E(r)_A = .025 + (.68 F1F1F1S1F1F1F10 .08)= .079E(r)_B = .025 + (1.42 F1F1F1S1F1F1F10 .08)= .139 Stock B is correctly priced.E(r)_C = .025 + (1.23 F1F1F1S1F1F1F10 .08)= .123E(r)_D = .025 + (1.31 .08)= .130E(r)_E = .025 + (.94 F1F1F1S1F1F1F10 .08)= .100

Which One of the Following Stocks Is Correctly Priced If