Question: a) Based on the following information, determine whether the securities are undervalued, overvalued or fairly valued by employing the Capital Asset Pricing Model (CAPM). Expected

a) Based on the following information, determine whether the securities are undervalued, overvalued or fairly valued by employing the Capital Asset Pricing Model (CAPM). Expected Return (%) 14.5 8.2 Correlation with Market Portfolio 0.8 0.7 0.5 Standard Deviation (%) 19 14 Security 1 Security 2 Security 3 Security 4 Market portfolio Risk-free rate 110 11 4.0 (16 marks) b) The recent global financial crisis has exposed the weaknesses of international investments. Discuss any two (2) potential risks of international diversification, (4 marks)

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