alleryStart learning →The risk-free rate is 6%, the market return 12% and a stock has expected return 10% with beta 0.5. Stock is
Aovervalued
Bfairly priced
Cundervalued
Dunrelated to SML
Answer & Solution
Correct answer: C. undervalued
Required = 6% + 0.5 x 6% = 9%; expected 10% exceeds it, so it plots above the SML.
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