Question: 11. Based on the following SML graph, select the incorrect statement. E(R i ) | | E(R M )= 13%|------------------------M | | * Q |
11. Based on the following SML graph, select the incorrect statement.
E(Ri)
|
|
E(RM)= 13%|------------------------M
| | *Q
| |
Rf=5%| |
| |
| |
|________________|_________________ b
bM=1.0
A) The market risk premium is 13%.
B) The slope of the SML is (13-5)/1 = 8.
C) Stock Q is currently over-valued in the market.
D) In equilibrium a stock with a beta of 0.5 should give a 9% expected return.
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