Question: We are given the following data on 3 assets: Asset 1 2 Analysts PIM Expected return 0.16 0.40 .4 .8 .8 .9 where PM

We are given the following data on 3 assets: Asset 1 2

We are given the following data on 3 assets: Asset 1 2 Analysts PIM Expected return 0.16 0.40 .4 .8 .8 .9 where PM is the correlation coefficient between r; and rM. Also, we have Erm = 0.24, M = 0.4. and rf = .06. (a) Find each asset's 3 and its expected return according to the CAPM. (b) Compare the expected return based on the CAPM with the analysts's expected return. Is the asset underpriced or overpriced?

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