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Unformatted text preview: What is the expected return on a stock with a beta of 1.3? A) 6% B) 15.6% C) 18% D) 21.6% 5. According to the capital asset pricing model, the expected rate of return on any security is equal to __________. A) [(the risk-free rate) + (beta of the security)] x (market risk premium) B) (the risk-free rate) + [(variance of the security's return) x (market risk premium)] C) (the risk-free rate) + [(security's beta) x (market risk premium)] D) (market rate of return) + (the risk-free rate) 6. Security X has an expected rate of return of 13% and a beta of 1.15. The risk-free rate is 5% and the market expected rate of return is 15%. According to the capital asset pricing model, security X is __________. A) fairly priced B) overpriced C) underpriced D) None of the above answers are correct...
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- Spring '08
- Capital Asset Pricing Model, risk-free rate, capital asset pricing, Asset Pricing Model