Home Interior's Stock Has an Expected Return of 13

Multiple Choice

Home Interior's stock has an expected return of 13.25 percent and a beta of 1.4.The market return is 10.75 percent and the risk-free rate is 4.5 percent.This stock is ________ because the CAPM return for the stock is ________ percent.

A) greatly overvalued; 16.50
B) slightly overvalued; 14.91
C) priced correctly; 13.25
D) slightly undervalued; 12.91
E) greatly undervalued; 16.50