Question: Problem 12-11 CAPM and Expected Return (LO2) The risk-free rate is 7% and the expected rate of return on the market portfolio is 12%. a.

Problem 12-11 CAPM and Expected Return (LO2)

The risk-free rate is 7% and the expected rate of return on the market portfolio is 12%.

a. Calculate the required rate of return on a security with a beta of 1.96. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Required return.

b. If the security is expected to return 15%, is it overpriced or underpriced?

multiple choice

Overpriced
Underpriced

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