Reference no: EM133061402

1) The risk-free rate is 6 percent and the expected market return is 15 percent. An investor sees a stock with a beta of 1.2 selling for $25 that will pay a $1 dividend next year. If he thinks the stock will be selling for $30 at year end, he thinks it is:

a. overpriced, so buy it.

b. overpriced, so short it.

c. underpriced, so buy it.

d. underpriced, so short it.

2) The market is expected to return 15 percent next year and the risk-free rate is 7 percent. What is the expected rate of return on a stock with a beta of 1.3?

a. 10.4%

b. 16.3%

c. 17.1%

d. 17.4%

3) The covariance of the market's returns with the stock's return is 0.005 and the standard deviation of the market's return is 0.05. What is the stock's beta?

a. 0.1

b. 1.0

c. 1.5

d. 2.