Keep the Highest: 1/2 10. The Capital Asset Pricing Model and the security market line Sean holds a portfolio that is invested equally in three stocks, such that wp - WW - 1/3. Each stock is described in the following table: Stock Beta Standard Deviation 25% Expected Return 8.0% DET 0.7 AIL 1.0 38% 10.0% INO 1.6 34% 13.5% An analyst has used market and firm-specific information to make expected return estimates for each stock. The analyst's expected return estimates may or may not equal the stocks' required returns. The risk-free rate (TRF) is 6%, and the market risk premium (RPM) is 4%. Use the following graph with the security market line (SML) to plot each stock's beta and expected return. 161 14 Stock DET 12 Percent) An analyst has used market and firm-specific information to make expected return estimates for each stock. The analyst's expected return estimates may or may not equal the stocks' required returns The risk-free rate (res) is 6%, and the market risk premium (RPM) is 4%. Use the following graph with the security market line (SML) to plot each stock's beta and expected return 161 14 Stock DET 12 10 Stock ALL RATE OF RETURN (Percent) Stock INO 4 2 0 0 02 0.4 1.6 18 20 0.6 0.8 1.0 12 RISK (Beta) A stock is in equilibrium if its required return equals its expected return. In general, assume that markets and stock are in equilibrium (or fairly dhe domat online 10 Stock AIL RATE OF RETURN (Percent) Stock INO 4 2 0 0 02 0.4 0.6 14 1.6 > 2.0 0.8 1.0 1.2 RISK (Beta) 1.8 A stock is in equilibrium if its required return equals its expected return. In general, assume that markets and stock are in equilibrium (or fairly valued), but sometimes investors have different opinions about a stock's prospects and may think that a stock is out of equilibrium (either undervalued or overvalued). Use the analyst's expected return estimates to determine if this analyst thinks that each stock in Sean's portfolio is undervalued, overvalued, or fairly valued. Which of the following statements are true? Check all that apply. Stock INO is overvalued Stock AIL is fairly valued Stock AIL is overvalued Stock DET is overvalued