. Consider the investment opportunity described below:

Beta Expected Return or

Actual Return (E(r) )

Jelly Roll's 1.75 19.0%

Angels Unlimited 1.25 17.5%

Video Viper 0.75 12.4%

Shoe Lacers 0.40 6.9%

aa) Calculate the required rate of return given risk free rate rf = 4% and market return rm = 12%.

b) Which of the investment is overpriced? Which have a positive Net Present Value when their cash flows are discounted at the CAPM required rate of return? Explain your reasoning.

c) If the inflation goes up by 2.5% and market risk premium remains the same, which

se security is overpriced/underpriced/correctly priced. Explain.

d) If inflation remains the same but market risk premium goes up to 10%, which security is overpriced/underpriced/correctly priced. Explain