Reference no: EM131350642
1. The risk-free rate is 4.2 percent and the expected return on the market is 12.3 percent. Stock A has a beta of 1.2 and an expected return of 13.1 percent. Stock B has a beta of 0.75 and an expected return of 11.4 percent. Are these stocks correctly priced? Why or why not?
A. No, Stock A is underpriced and Stock B is overpriced.
B. No, Stock A is overpriced and Stock B is underpriced.
C. No, Stock A is overpriced but Stock B is correctly priced.
D. Yes, both stocks are correctly priced.
2. Which one of the following is the slope of the security market line?
A. Risk-free rate
B. Market-risk premium
C. Beta coefficient
D. Risk premium on an individual asset
3. A project is expected to create operating cash flows of $26,500 a year for three years. The initial cost of the fixed assets is $55,000. These assets will be worthless at the end of the project. An additional $5,000 of net working capital will be required throughout the life of the project. What is the project's net present value if the required rate of return is 15 percent?
$1,566.67
$505.47
$8,793.05
$-1,206.95
$3,793.05
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