Problem $3,$ Question $2$

Assume that the risk$-$free rate is $6\%$ and the expected market return is $16\%.$ The expected returns and the betas of the following $4$ securities are given below:

Stock Exp. return Beta

A $19\%1\mathrm{.}2$

B $20\%1\mathrm{.}4$

C $15\%0\mathrm{.}8$

D $11\%0\mathrm{.}6$

Suppose you create an equally$-$weighted portfolio that consists of all under$-$priced securities$.$ What should be the return of this portfolio according to the CAPM?

Question $21$Answer

a$.$

$17\%$

b$.$

$1\%$

c$.$

$18\%$

d$.$

$14\%$

e$.$

$6\%$

f$.$

$16\%$

g$.$

$2\%$

h$.$

$19\%$

i$.$

$15\%$

j$.$

$12\%$