The expected return on the market portfolio is 20%. The risk-free rate is 12%. The expected...
The expected return on the market portfolio is 20%. The risk-free rate is 12%. The expected return on SDA Corp. common stock is 19%. The beta of SDA Corp. common stock is 1.20. Within the context of the capital asset pricing model, _________.
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SDA Stock is underpriced
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SDA stock is fairly priced
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SDA stock's alpha is 2.6%
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SDA Corp. stock's alpha is –2.60%
Homework Answers
D. SDA Corp. stock's alpha is –2.60%
CAPM E(rSDA) = 12% + 1.20(20% - 12%) = 21.6%
SDA =
19% - 21.6% = -2.6%
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