how do i find the ER and which stock is underpriced

217ou-8371298isprv-&dic=18gra871639&cfgl=Oldnb=08fromQB=0 c 16 2020 SECTION 1 Left:0:36:03 Moid Khaled Lahwil: Attempt 1 Previous Page Next Page Page 6 of 9 Question 6 (6 points) Saved You are given the following information about the beta coefficient, returns as expected by your brokerage firm, the expected return of the market and the amount you should allocate to each stock E(RM)=20% and the risk-free rate is 4% (Select all correct answers below and show your calculation on your exam paper). 1. Calculate the equilibrium rate of return E(R) of each stock according to the CAPM. 2. Based on your broker's prediction, explain which stock is underpriced and which stock is overpriced. What is your buy and sell decision? 3. Calculate the beta of the portfolio invested in these 4 stocks 4. Calculate the expected return of the portfolio invested in these 4 stocks Stock Investment Beta Broker's expectation A $400,000 1.5 25% $600,000 -0.5 2% $500,000 1.25 22% $700,000 0.75 18% Stock E(RI) A 22%% 16% 80% 16% Stock E(RI) A 32% 25% 16% Buy B and D as they are underpriced and sell A and C as they are overpriced Portfolio return 14.55% Portfolio return 20.11% EPIC+ attempt/quiz start.frame_auto dinow-83712950spry-dutres18up .8718:1980cfa/04canb-OdfromQ#-D FINAL EXAM Dec 16 2020 SECTION 1 me Limit 1:30:00 Time Left:0:35:04 Moid Khaled Lahwil: Attempt 1 Page 1: Portfolio.return Portfolio return 20 11 Portfolio return 18.00% Page 2: portfolio beta 0.65 Stock A 28% Page 3: 249 16% Portfolio return 16.76% Page 4: Bu A and D as they are underpriced and sell B and C as they are overpriced Buy C and D as they are underpriced and sell A and B as they are overpriced Page 5: Portfolio Beta Stack A 235 B Page 6: 6 Portfolio Beta 0.8 Portfolio Beta D.875 Page 7: Bu A and B as they are undervalued and sell C and D as they overpriced Previous Page Next Page Page 6 of 9 Beno chin