The Risk-Free Rate Is 4 Percent

Multiple Choice

The risk-free rate is 4 percent.The expected market rate of return is 11 percent.If you expect CAT with a beta of 1.0 to offer a rate of return of 13 percent,you should

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