Stock a has a beta of 14 and an expected return of 16, Ask an Expert

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Stock A has a beta of 1.4 and an expected return of 16 percent. Stock B has a beta of 0.80 and an expected return of 11 percent. If the risk-free rate is 5 percent, the expected return on the market is 13 percent, and the CAPM holds, which of the following statements about the prices of these stocks is correct?

a. The market price of stock A is twice as large as the price of these stocks is correct?

b. Stock A is overpriced, and Stock B is underpriced

c. Stock A is underpriced, and Stock B is overpriced

d. Both stocks are overpriced

e. Both stocks are underpriced

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Financial Management, Finance

Category:- Financial Management
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