Uranium Energy Corp. (UEC) stock, as compared to the S&P 500, has the following parameters: the risk-free rate is 2.5%, the market risk premium is 3.5%, the current market return on this stock is 9.15% and the company beta is 1.61, the current stock price is $1.67.
a. Graph the security market line (SML) and plot the price and risk for this stock.
b. Determine if the stock is overpriced, underpriced, or in equilibrium with the Capital Asset Pricing Model. Show work.
c. Evaluate advantages would you have using the arbitrage pricing theory (APT) as opposed to the CAPM for the Uranium Energy Corp. stock. You may need to research this company to view the likely APT valuation.