Home Interior's Stock Has an Expected Return of 12

Multiple Choice

Home Interior's stock has an expected return of 12.89 percent and a beta of 1.28. The market return is 10.7 percent and the risk-free rate is 2.8 percent. This stock is _____ because the CAPM return for the stock is _____ percent.

A) greatly overvalued; 16.50
B) slightly overvalued; 12.91
C) priced correctly; 12.89
D) slightly undervalued; 12.91
E) greatly undervalued; 16.50