Then the stock underpriced.
Risk-free rate = 4%
Beta, β = 1.5
rm = Market return = 12%
Re = 4% + 1.5 × ( 12% - 4% )
= 4% + 1.5 × 8%
= 16%
According to CAPM, the required rate of return on the stock is 16%, but the expected rate of return on the stock is only 15%. So, the stock is overpriced.
A stock, also referred to as equity, is a security that Stock the ownership of a fraction of the issuing corporation. units of inventory are called "stocks" which entitles the owner to a proportion of the employer's assets and earnings same to how a good deal inventory they own.
Two sorts of stock. All publicly traded corporations trouble common stock. some businesses additionally difficulty favored stock, which exposes you to truly less hazard of dropping money, however also gives much less ability for total return.
Stocks are economic belongings, not real property. financial property are paper property that may be effortlessly transformed to cash. real property are tangible and consequently have intrinsic value.
Disclaimer:- your question is incomplete, please see below for the complete question.
A. correctly priced.
B. overpriced.
C. underpriced.
D. cannot be determined
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