Question: 2. 10 POINTS For parts (a) and (b) consider the following table: Portfolio Expected return Bi Risk free .06 0 Market .20 1 Asset 1

2. 10 POINTS For parts (a) and (b) consider the following

2. 10 POINTS For parts (a) and (b) consider the following table: Portfolio Expected return Bi Risk free .06 0 Market .20 1 Asset 1 .24 1.2 Asset 2 .12 .6 where the expected returns for assets 1 and 2 are analysts's expected returns. (a) Determine if asset 1 is overpriced or underpriced acording to the CAPM. Justify your answer. (b) Determine if asset 2 is overpriced or underpriced according to the CAPM. Justify your answer. (c) Consider the following table: Portfolio Expected return O i Risk free .06 0 Market .12 .10 Asset 3 .18 .24 Determine if this situation is compatible with the CAPM. Explain why or why not

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