A Friend Has Information That the Stock of Zip Incorporated

Multiple Choice

A friend has information that the stock of Zip Incorporated is going to rise from $62.00 to $65.00 per share over the next year. You know that the annual return on the S&P 500 has been 10 percent and the 90-day T-bill rate has been yielding 6 percent per year over the past 10 years. If beta for Zip is 0.9, will you purchase the stock?

A) Yes, because it is overvalued.
B) Yes, because it is undervalued.
C) No, because it is undervalued.
D) No, because it is overvalued.
E) Yes, because the expected return equals the estimated return.