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Here is my question?

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A colleague of yours has information that the stock of Alpha, Inc. is expected to rise from its current price of $62.00 to $65.00 over the course of the next year. You are aware that the annual return on the S&P 500 has been 10% historically and that the 90 day T-Bill rate has been yielding 6% over the last 10 years. If the beta for Alpha, Inc. is currently 0.9, should you purchase the stock and why or why not?

A. Yes, because it is overvalued.

B. Yes, because it is undervalued.

C. No, because it is undervalued.

D. No, because it is overvalued.

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1 ANSWERS


  1. Simply:  A 4.8% anticipated growth ($62 to $65) is not worth the "market" risk.

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