# Question: Within the context of the capital asset pricing model CAPM

Within the context of the capital asset pricing model (CAPM), assume:

• Expected return on the market = 15 percent

• Risk- free rate = 8 percent

• Expected rate of return on XYZ security = 17 percent

• Beta of XYZ security = 1.25 Which one of the following is correct?

a. XYZ is overpriced.

b. XYZ is fairly priced.

c. XYZ’s alpha is 2.25 percent.

d. XYZ’s alpha is .25 percent.

• Expected return on the market = 15 percent

• Risk- free rate = 8 percent

• Expected rate of return on XYZ security = 17 percent

• Beta of XYZ security = 1.25 Which one of the following is correct?

a. XYZ is overpriced.

b. XYZ is fairly priced.

c. XYZ’s alpha is 2.25 percent.

d. XYZ’s alpha is .25 percent.

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