Multiple Choice
The risk-free rate is 4%. The expected market rate of return is 12%. If you expect stock X with a beta of 1.0 to offer a rate of return of 10%, you should
A) buy stock X because it is overpriced.
B) sell short stock X because it is overpriced.
C) sell short stock X because it is underpriced.
D) buy stock X because it is underpriced.
E) None of the options, as the stock is fairly priced.
Correct Answer:
Verified
Correct Answer:
Verified
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