1. The CAMP solves for:
a. The future rate of return
b. The expected rate of return
c. The mystery of life
d. The required rate of return
2. The risk-free rate for next year is 3% and market risk premium is expected to be 10%. The beta of PPL’s (peter power & light) stock is 1.5 . If you believe that PPL’s stock will actually return 18.2% over the next year, then according to the CAMP you should:
a. Be indifferent between buying and selling the stock
b. Sell the stock because it is underpriced
c. Sell the stock because it is overpriced
d. Buy the stock because it is underpriced
e. Buy the stock because it is overpriced