Question: 7. The table below gives information on the expected and required rates of return based on the CAPM for three securities an analyst is valuing:

7. The table below gives information on the expected and required rates of return based on the CAPM for three securities an analyst is valuing:

Expected Rate CAPM Required Rate Security 1 0.20 0.21 Security 2 0.18 0.08 Security 3 0.11 0.10 A. Define ex ante alpha.

B. Calculate the expected alpha of Securities 1, 2, and 3 and rank them from most attractive to least attractive.

C. Based on your answer to Part B, what risks attach to selecting among Securities 1, 2, and 3?

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