Question

You have analyzed the following four securities and have estimated each securityʹs beta and what you...

You have analyzed the following four securities and have estimated each securityʹs beta and what you expect each security to return next year. The expected return on the market portfolio is 9%, and the relevant risk-free rate is 3%. Security Beta Expected return A 1.30 10.00% B 0.90 7.00% C 0.50 6.00% D 1.80 14.00% Based on your analysis, which securities is (are) overpriced?

none of them

Security C and D

Security B and C

Security A and B

0 0
Add a comment Improve this question Transcribed image text
Know the answer?
Add Answer to:
You have analyzed the following four securities and have estimated each securityʹs beta and what you...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • 1) A project has a market beta of 1.7. The risk-free rate is 3%, and the...

    1) A project has a market beta of 1.7. The risk-free rate is 3%, and the equity premium is 5%. Your firm should undertake this project only if it returns greater or equal to 8% greater or equal to 35% greater or equal to 8.3333% greater or equal to 11.5% 2) A zero-coupon bond has a beta of 0.3 and promises to pay $1000 next year with a probability of 95%. If the bond defaults, it will pay nothing. One...

  • (e) Two securities with the same standard deviations can have different betas. (f) Two securities that...

    (e) Two securities with the same standard deviations can have different betas. (f) Two securities that have the same correlation coefficients with the market portfolio will have the same betas. (g) The return on a share with a beta of zero is expected to vary directly with the return on the market portfolio. (h) The equation for the security market line when the expected return on the market is 15% and the risk-free rate is 6% is rį = 9...

  • In relation to the CAPM, indicate for each of the following statements whether it is true...

    In relation to the CAPM, indicate for each of the following statements whether it is true or false and explain why. (a) Investors do not differ in their attitudes toward risk. (b) In equilibrium, all risky assets are priced such that their expected return lies on the security market line. (c) If a share's expected return is 4% and the expected return on the market portfolio is 15%, the share's beta must be negative. (d) Two securities with the same...

  • Suppose the rate of return on short-term govemment securities (perceived to be risk free) is about...

    Suppose the rate of return on short-term govemment securities (perceived to be risk free) is about 5%. Suppose also that the expected rate of return required by the market for a portfolio with a beta of 1 is 12%. According to the capital asset pricing model (security market line): a. What is the expected rate of return on the market portfolio? b. What would be the expected rate of return on a stock with B 0? c. Suppose you consider...

  • 7. Assume you want to construct a portfolio from the following two securities. What is the...

    7. Assume you want to construct a portfolio from the following two securities. What is the expected return on your portfolio if you invest $800,000 in Security 1 and $200,000 in Security 2? Security Expected Return Beta 1 14.0% 1.12 2 10.5% 0.94 A. 13.8% B. 13.6% C. 13.3% D. 12.9% E. 12.3% 7. Assume you want to construct a portfolio from the following two securities. What is the expected return on your portfolio if you invest $800,000 in Security...

  • You have been provided the following data about the securities of three firms, the market portfolio, and the risk-free a...

    You have been provided the following data about the securities of three firms, the market portfolio, and the risk-free asset: a. Fill in the missing values in the table. * With the market portfolio b-1. What is the expected return of Firm A? b-2. What is the expected return of Firm B? b-3. What is the expected return of Firm C? Security Expected Return Standard Deviation Correlation* Beta 0.21 Firm A 0.120 0.96 Firm B 0.130 040 1.51 Firm C...

  • Suppose the rate of return on short-term government securities (perceived to be risk-free) is about 7%....

    Suppose the rate of return on short-term government securities (perceived to be risk-free) is about 7%. Suppose also that the expected rate of return required by the market for a portfolio with a beta of 1 is 15%. According to the capital asset pricing model: a. What is the expected rate of return on the market portfolio? (Round your answer to 2 decimal places.) Expected rate of return b. What would be the expected rate of return on a stock...

  • You hold a portfolio with the following securities: Expected Security Value Beta Return Driscol Corporation 20%...

    You hold a portfolio with the following securities: Expected Security Value Beta Return Driscol Corporation 20% 3.20 36.0% Evening Corporation 40% 1.60 20.0% Frolic Corporation 40% .20 6.0% What is the expected return for the portfolio? A. 28.59% B. 23.54% C. 17.60% D. 20.67%

  • Suppose the rate of return on short-term government securities (perceived to be risk-free) is about 8%....

    Suppose the rate of return on short-term government securities (perceived to be risk-free) is about 8%. Suppose also that the expected rate of return required by the market for a portfolio with a beta of 1 is 16%. According to the capital asset pricing model: a. What is the expected rate of return on the market portfolio? (Round your answer to 2 decimal places.) Expected rate of return b. What would be the expected rate of return on a stock...

  • . (Portfolio beta and security market line) You own a portfolio consisting of the following stocks...

    . (Portfolio beta and security market line) You own a portfolio consisting of the following stocks The risk-free rate is 4 percent. Also, the expected return on the market portfolio is 9 percent. a. Calculate the expected return of your portfolio (Hint: The expected return of a portfolio equals the weighted average of the individual stocks' expected returns where the weights are the percentage invested in each stock.) b. Calculate the portfolio beta. c. Given the foregoing information, plot the...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT