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 a stock with a beta of 1.3 to offer a rate of return of 12 percent,you should

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