The risk free rate is 10% and the expected return on the market portfolio is 15%....

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The risk free rate is 10% and the expected return on the market portfolio is 15%. The expected returns for 4 securities are listed below together with their expected betas SECURITYEXPECTED RETURNEXPECTED BETA A B C D 17.0% 14.5% 15.5% 18.0% 1.3 0.8 1.1 1.7 REQUIRED: (a) On the basis of these expectations, which securities are overvalued? Which are undervalued? (8 marks) (b) If the risk-free rate were to rise to 12% and the expected return on the market portfolio rose to 16%, which securities would be overvalued? Which would be under-valued? (Assume the expected returns and the betas remain the same). (8 marks) The risk free rate is 10% and the expected return on the market portfolio is 15%. The expected returns for 4 securities are listed below together with their expected betas SECURITYEXPECTED RETURNEXPECTED BETA A B C D 17.0% 14.5% 15.5% 18.0% 1.3 0.8 1.1 1.7 REQUIRED: (a) On the basis of these expectations, which securities are overvalued? Which are undervalued? (8 marks) (b) If the risk-free rate were to rise to 12% and the expected return on the market portfolio rose to 16%, which securities would be overvalued? Which would be under-valued? (Assume the expected returns and the betas remain the same). (8 marks)

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