单选题 Mason Snow, CFA, is an analyst with Polari Investments. Snow's manager has instructed him to put only securities that are undervalued on the buy list. Today, Snow is to make a recommendation on the following two stocks: Bahre (with an expected return of 10 percent and a beta of 1.4) and Cubb (with an expected return of 15 percent and a beta of 2.0). The risk-free rate is at 7 percent and the market premium is 4 percent. Snow places:

A、

A. neither security on the list.
B、

B. only Bahre on the list.
C、

C. only Cubb on the list.

【正确答案】 A

【答案解析】In the context of the SML, a security is underpriced if the required return is less than the holding period(or expected) return, is overpriced if the required return is greater than the holding period ( or expected) return, and is correctly priced if the required return equals the holding period (or expected) return. Here, the holding period (or expected) return is calculated as: (ending price -beginning price + any cash flow or dividends ) /beginning price. The required return uses the equation of the SML: risk free rate + Beta × ( expected market rate - risk free rate). For Bahre: ER=10%(given), RR = 0.07 + 1.4 × (0.11-0.07) =12.6%. Stock is overpriced - do not put on buy list. For Cubb: ER = 15% (given), RR =0.07+2.0 × (0.11-0.07) = 15%. Stock is correctly priced -do not put on buy list.