1. XYZ Inc. stock had returns of 18 percent, 0 percent, -7 percent, 22 percent and 15 percent in each of the last five years, respectively. What were the arithmetic and geometric average rates of return of XYZ stock, respectively?

A. 10.30 percent; 9.37 percent

B. 9.60 percent; 9.37 percent

C. 9.60 percent; 9.01 percent

D. 9.60 percent; 11.39 percent

2. A stock has a beta of 1.18. A portfolio manager has estimated that the stock is currently priced to yield an expected return of 13.2 percent. The risk-free rate is 4.1 percent and the expected return on the market portfolio is 11.6 percent. According to the Capital Asset Pricing Model, which of the following statements is true?

A. The stock is overpriced because it plots below the security market line.

B. There isn't enough information to make any decision on whether the stock is overpriced or underpriced.

C. The stock is underpriced because its estimated return is higher than its required return.

D. The stock is fairly priced.