O Phil could have sold 5,000 shares at $23 per share. O The underwriters earned
ID: 2656975 • Letter: O
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O Phil could have sold 5,000 shares at $23 per share. O The underwriters earned a spread equal to 8 percent of $17 O The maximum price at which Terry could have sold shares is $21. O Amy paid 108 percent of $14 per share to purchase her 100 shares QUESTION 14 10 points Save Answe The risk-free rate is 42 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? O No, Stock A is underpriced and Stock B is overpriced 2 O No, Stock A is overpriced and Stock B is underpriced O No, Stock A is overpriced but Stock B is correctly priced No, Stock A is underpriced but Stock B is correctly priced O Yes, both stocks are correctly pricerd QUESTION 15 10 points Save Answer tht You find a certain stock that had réturns of 14 percent, 27 percent. 19 percent, and 21 percent for four of the last five years, respectively. The average return of the percent for f stock over this period was 9.5 percent. What is the standard deviation of the stock's returns? eand submi tClick Save All Answers to save all answers Click Save and S Save All Answers Save and Submit O Type here to searchExplanation / Answer
Expected Return of Stock A = 13.1%
Expected Return as per CAPM = Risk Free rate + Beta * (Market return - Risk Free rate) =
4.2% + 1.2 * ( 12.3% - 4.2%) = 13.92%
Since Expected rate of Stock A is less than Capm Rate hence it is underpriced.
Expected Return of Stock B = 11.4%
Expected Return as per CAPM = Risk Free rate + Beta * (Market return - Risk Free rate) =
4.2% + 0.75 * ( 12.3% - 4.2%) = 10.275%
Since Expected rate of Stock B is more than Capm Rate hence it is overpriced.
No both stocks are not correctly priced.
Option a is correct. Stock A is underpriced and stock is overpriced.
Best of Luck. God Bless
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