Within the context of the capital asset pricing model (CAPM), assume the following:
• Expected return on the market= 15%
• Risk-free rate = 8%
• Expected rate of return on XYZ security = 17%
• 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 - .25%.
d. XYZ's alpha is .25%.