Which one of the following stocks is correctly priced according to CAPM if the risk-free rate of return is 3.4 percent and the market risk premium is 7.4 percent? Stock Beta Expected Return A .87 .096 B 1.09 .102 C 1.62 .146 D .98 .107 E 1.16 .139

D)Beta .98 expected return .107

Explanation:

In CAPM (Capital Asset Pricing Model), expected return = risk-free rate + Beta * market risk premium = 3.4% + Beta * 7.4%

We try every choice consecutively

A)Beta .87  expected return .096

⇒ expected return = 3.4% + 0.87 * 7.4% = 0.098

A is wrong

B)Beta 1.09   expected return .102

⇒ expected return = 3.4% + 1.09 * 7.4% = 0.1147

B is wrong

C)Beta 1.62 expected return .146

⇒ expected return = 3.4% + 1.62 * 7.4% = 0.154

C is wrong

D)Beta .98 expected return .107

⇒  expected return = 3.4% + 0.98 * 7.4% = 0.107

D is TRUE

E)Beta 1.16   expected return .139

⇒ expected return = 3.4% + 1.16* 7.4% = 0.12

E is wrong

answeraggressive behavior tactics include all of the above;