28 The common stock of Mercy-West Corp. has a beta of 1.27 and an actual...
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Finance
28 The common stock of Mercy-West Corp. has a beta of 1.27 and an actual expected return of 13.41 percent. The risk-free rate of return is 3.7 percent and the market rate of return is 9.56 percent. Which one of the following statements is true given this information?
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The actual expected stock return indicates the stock is currently overpriced.
The actual expected stock return indicates the stock is currently underpriced.
The stock has less systematic risk than the overall market.
The stock is correctly priced according to CAPM.
The actual expected return will graph below the Security Market Line.
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