Given the Following Information: the Risk-Free Rate Is 7%, the Beta

Multiple Choice

Given the following information: The risk-free rate is 7%, the beta of stock A is 1.2, the beta of stock B is 0.8, the expected return on stock A is 13.5%, and the expected return on stock B is 11.0%. Further, we know that stock A is fairly priced and that the betas of stocks A and B are correct. Which of the following regarding stock B must be true?

A) Stock B is also fairly priced.
B) The expected return on stock B is too high.
C) The expected return on stock A is too high.
D) The price of stock B is too high.
E) The price of stock A is too high.