+ Part 3. Risk-return relationship questions 24. Suppose you have 3 assets with the following correlations:...

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+ Part 3. Risk-return relationship questions 24. Suppose you have 3 assets with the following correlations: Choice A. corr(rarb) = -0.09 Choice B. corr(rare) = 0.001 Choice C. corr(rc.rb) = 0.07 Which one of these pair will result in the most efficient diversification? Final answer (Choice X) Why? 25. If the beta of Firm A is 0.92 and the expected return on the market is 14%, what is the fair (required) rate of return on this stock? Refer to Q11 for the risk-free rate. Formula Final answer (xx.xx%) 26. Your security analysis predicts the return on Firm A stock to be 9%. Is the stock overvalued, undervalued, or priced just right? Why? Would it plot above, below, or right on the SML? Circle your answer (undervalued, overvalued, fairly priced) + Part 3. Risk-return relationship questions 24. Suppose you have 3 assets with the following correlations: Choice A. corr(rarb) = -0.09 Choice B. corr(rare) = 0.001 Choice C. corr(rc.rb) = 0.07 Which one of these pair will result in the most efficient diversification? Final answer (Choice X) Why? 25. If the beta of Firm A is 0.92 and the expected return on the market is 14%, what is the fair (required) rate of return on this stock? Refer to Q11 for the risk-free rate. Formula Final answer (xx.xx%) 26. Your security analysis predicts the return on Firm A stock to be 9%. Is the stock overvalued, undervalued, or priced just right? Why? Would it plot above, below, or right on the SML? Circle your answer (undervalued, overvalued, fairly priced)

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24 Choice B corr rare 0001 This pair has the lowest correlation cl... View the full answer