You expect the risk-free rate (RFR) to be 3 percent and the market return to be 10 percent. You also have the following information about three stocks. STOCK Coca-Cola BETA 1.7 CURRENT PRICE 52.75 EXPECTED PRICE 57.00 EXPECTED DIVIDEND 1.11 What is your investment strategy concerning Coca-Cola stock? Group of answer choices The stock is undervalued. Buy the stock. The stock is undervalued. Sell the stock. The stock is overvalued. Buy the stock. The stock is overvalued. Sell the stock. The stock is fairly valued. Hold the stock.
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
You expect the risk-free rate (RFR) to be 3 percent and the market return to be 10 percent. You also have the following information about three stocks.
STOCK Coca-Cola
BETA 1.7
CURRENT PRICE 52.75
EXPECTED PRICE 57.00
EXPECTED DIVIDEND 1.11
What is your investment strategy concerning Coca-Cola stock?
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