Question

Over the past year you held a stock that generated a return of 15 percent. The stocks beta was 1.5, the risk-free rate was 3
b. Was this stock overpriced, fairly priced or under priced. Explain. (5 pts)
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Answer #1

rate positively ..

Required rate of return = Risk free rate + market risk premium *beta
3%+7%*1.5
13.5%
Actual return = 15%
Therefore stock is Underpriced .
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