A single mispriced asset has an alpha = 4.0%, a beta = 1.0 and unsystematic

A single mispriced asset has an alpha α = 4.0%, a beta β = 1.0 and unsystematic risk (variance) of 16.0%. The market risk premium is 5.0% and the market's Sharpe Ratio is 0.5.In constructing an optimal allocation between the mispriced asset and the market.

What proportion of your investment would you place in the mispriced asset?

Answer rating: 100% (QA)

To determine the proportion of your investment to allocate to the mispriced asset you can use the co... View the full answer