The Risk-Free Rate Is 7 Percent

Multiple Choice

The risk-free rate is 7 percent.The expected market rate of return is 15 percent.If you expect stock X with a beta of 1.3 to offer a rate of return of 12 percent,you should

A) buy stock X because it is overpriced.
B) sell short stock X because it is overpriced.
C) sell stock short X because it is underpriced.
D) buy stock X because it is underpriced.
E) none of these,as the stock is fairly priced.