Q. The risk-free rate for the next year is 3%, and the market risk premium is expected to be 10%. The beta of Acme’s stock is 1.5. If you believe that Acme’s stock will actually return 18.2% over the next year, then according to the CAPM you should: (Solved)
1. be indifferent between buying and selling the stock.
2. buy the stock because it is under priced.
- b. buy the stock because it is under priced.