You have been asked to analyze two stocks, Stock A and Stock B. The be

You have been asked to analyze two stocks, Stock A and Stock B. The beta of stock A is 1.2, and the beta of stock B is 0.8. The expected return on stock A is 13.5%, the expected return on stock B is 11.0% and the risk-free rate is 7%.

We also know that stock A is fairly priced. Which of the following regarding Stock B must be true?
A) The expected return on stock A is too high.
B) Stock B is also fairly priced.
C) The price of stock B is too high.
D) The expected return on stock B is too high.

ANSWER

C