You estimate that Ulmer Inc. stock has a beta of 0.86 and an annual expected return of 10.5 percent. The annual risk-free rate of return is 3.2 percent and the annual market rate of return is 11.2 percent. Which one of the following statements is true? (2) a. The expected return on Ulmer stock will plot below the Security Market Line (SML). b. Ulmer stock is overpriced. c. The expected return on Ulmer stock based on the Capital Asset Pricing Model (CAPM) is 12.83 percent. d. Ulmer stock gives more exposure to systematic sources of risk than the overall market. e. Ulmer stock is underpriced.

You estimate that Ulmer Inc. stock has a beta of 0.86 and an annual expected return of 10.5 percent. The annual risk-free rate of return is 3.2 percent and the annual market rate of return is 11.2 percent. Which one of the following statements is true? (2)

a. The expected return on Ulmer stock will plot below the Security Market Line (SML).
b. Ulmer stock is overpriced.
c. The expected return on Ulmer stock based on the Capital Asset Pricing Model (CAPM) is 12.83 percent.
d. Ulmer stock gives more exposure to systematic sources of risk than the overall market.
e. Ulmer stock is underpriced.

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