question archive Suppose that a risky asset with a beta of 1,5 is offering a return of 20%

Suppose that a risky asset with a beta of 1,5 is offering a return of 20%

Subject:AccountingPrice:2.84 Bought3

Suppose that a risky asset with a beta of 1,5 is offering a return of 20%. Risk-free rate is 2% and market risk is 14%. Is the asset fairly priced in the market?

  1. Yes, it is fairly priced.
  2. No, it is overvalued.
  3. No, it is undevalued.
  4. We cannot retrieve the answer with this information.

pur-new-sol

Purchase A New Answer

Custom new solution created by our subject matter experts

GET A QUOTE

Answer Preview

Answer:- The option 'a-Yes, it is fairly priced' is correct. Because Return is equal to Required return. And other option are incorrect.

Required return Formula =Risk free rate+Beta*(Market rate-Risk free rate)

=2+1.5*(14-2)

=20%

Related Questions