The expected market rate of return is 12 the risk-free rate, Financial Management

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The expected market rate of return is 12 the risk-free rate

The expected market rate of return is 12%, the risk-free rate is 3%. Stock A has a beta of 1.3 . If stock A is priced to yield a rate of return of 16% (expected return), then:

a. Stock A is overpriced

b. Stock A is underpriced

c. Stock A lies on the SML

d. Stock A lies below the SML

e. Stock A is fairly priced

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Financial Management: The expected market rate of return is 12 the risk-free rate

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Financial Management: The expected market rate of return is 12 the risk-free rate

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