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Question:

A stock has a beta of 0.9 and an estimated return of 10%. The risk- free rate is 7%, and the expected return on the market is 11%. According to the CAPM, this stock:

A is overvalued.
Explaination

E(R) = 7% + 0.9(11% - 7%) = 10.6%. Because the expected return of 10% is less than the required return of 10.6%, the security is overvalued.