Which one of the following stocks,if any,is correctly priced according to CAPM if the risk-free rate of return is 6.5 percent and the market rate of return is 10.5 percent? Stock A with a beta of .85 and an expected return of 9.22 percent;Stock B with a beta of 1.08 and an expected return of 11.90 percent;Stock C with a beta of 1.69 and an expected return of 15.38 percent;Stock D with a beta of 1.45 and an expected return of 12.30 percent.
A)Stock A
B)Stock B
C)Stock C
D)Stock D
E)None of the stocks are correctly priced according to CAPM.

Question

Quizplus · Accepted Answer

E(r)_A = .065 + [.85 × (.105 - .065)] = .0990,or 9.90 percentE(r)_B = .065 + [1.08 × (.105 - .065)] = .1082,or 10.82 percentE(r)_C = .065 + [1.69 × (.105 - .065)] = .1326,or 13.26 percentE(r)_D = .065 + [1.45 × (.105 - .065)] = .1230,or 12.30 percentStock D is correctly priced.

Which One of the Following Stocks,if Any,is Correctly Priced According