An analyst does research about capital asset pricing model and gathers the following information:
Estimated rate of return for a stock | 12.0% |
Expected rate of return for the market risk premium | 9.5% |
Risk-free rate of retum | 3.5% |
If the covariance of the returns on the stock with the returns on the market portfolio is equal to the variance of the returns on the market portfolio, the analyst's most appropriate conclusion is that the stock is:()
A. overvalued.
B. properly valued.
C. undervalued because the required rate of return for the stock is greater than 9.5%.