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You have been asked to analyze two stocks, Stock A and Stock B. The beta of stock A is 1.2, and the ...

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You have been asked to analyze two stocks, Stock A and Stock B. The beta of stock A is 1.2, and the ...

You have been asked to analyze two stocks, Stock A and Stock B. The beta of stock A is 1.2, and the beta of stock B is 0.8. The expected return on stock A is 13.5%, the expected return on stock B is 11.0% and the risk-free rate is 7%. We also know that stock A is fairly priced. Which of the following regarding Stock B must be TRUE?

▸ The expected return on stock A is too high.

▸ Stock B is also fairly priced.

▸ The price of stock B is too high.

▸ The expected return on stock B is too high.

Textbook

Corporate Finance Online

Edition: 2^nd

Authors: Eakins, McNally

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