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problem: You have been scouring The Wall Street Journal looking for stocks that are "good values" & have computed the expected returns for five stocks (a,b,c,d,e). Suppose the risk-free rate (kRF) is 7% and the market risk premium (kM - kRF ) is 2%. Determine which security would be the best investment? [Suppose you must select just one.]

Expected Return

Beta

 

a.

9.01%

1.70

b.

7.06%

0.00

c.

5.04%

-0.67

d.

8.74%

0.87

e.

11.50%

1.4

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