A stock has an HPR of 6.4% and a CAPM return of 9.5%. Which of the folloving is true? You should short the stock because it is undervalued. You should short the stock because it is overvalued. You should buy the stock because it is overvalued. O You should buy the stock because it is undervalued.

A stock has an HPR of 6.4% and a CAPM return of 9.5%. Which of the folloving is true? You should short the stock because it is undervalued. You should short the stock because it is overvalued. You should buy the stock because it is overvalued. O You should buy the stock because it is undervalued.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 8P

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Question

Please andwer both. A stock has an HPR of 6.4% and a CAPM return of 9.5%. Which of the folloving is true?

You should short the stock because it is undervalued.
You should short the stock because it is overvalued.
You should buy the stock because it is overvalued.

O You should buy the stock because it is undervalued.

QUESTION 2

The Beta for a company on finance.yahoo.com is much lower than the Beta given on finviz.com. If you were to use the beta from finance.yahoo.com instead of the one on finviz.com, which of the following is true?

The alpha calculated with yahoo's beta will be much lower, so that stock may appear undervalued instead of overvalued.
The alpha calculated with yahoo's beta may be much higher, so the stock may appear overvalued instead of undervalued.
Cannot be determined without more information.
The alpha calculated with yahoo's beta will be much higher, so that stock may appear undervalued instead of overvalued.

Definition Definition Model that illustrates the correlation between the expected return and risk of capital investment in stock. According to this model, the expected rate of return on equity is equal to the risk-free return added to a risk premium, which is based on the stock beta.

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