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Annsanchez5526
27.05.2020 •
Business
Evaluate how successful the iPhone 11 was.
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Ответ:
As the required rate of return of the security (9.52%) is more than the expected rate of return (8%), the security or stock is overpriced.
Option b is the correct answer.
Explanation:
A security is underpriced when the required rate of return of the security is less than the expected rate of return and vice versa.
Using the CAPM, we can calculate the required rate of return on a stock. This is the minimum return required by the investors to invest in a stock based on its systematic risk, the market's risk premium and the risk free rate.
The formula for required rate of return under CAPM is,
r = rRF + Beta * (rM - rRF)
Where,
rRF is the risk free rate rM is the market returnr = 0.04 + 0.92 * (0.1 - 0.04)
r = 0.0952 or 9.52%
As the required rate of return of the security (9.52%) is more than the expected rate of return (8%), the security or stock is overpriced.