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  3. you have analyzed the following four securities an

You have analyzed the following four securities and have estimated each security?s beta and what you...

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Finance

  1. You have analyzed the following four securities and haveestimated each security?s beta and what you expect each security toreturn next year. The expected return on the market portfolio is13%, and the relevant risk-free rate is 5.5%.

    Security

    Beta

    Expected return (based on your analysis)

    A

    1.30

    14.0%

    B

    0.85

    12.5%

    C

    0.20

    7.0%

    D

    2.10

    28.0%

    Based on your analysis, which of the securities isoverpriced?

    A) Security A

    B) Security B

    C) Security C

    D) Security D

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Transcribed Image Text

You have analyzed the following four securities and haveestimated each security?s beta and what you expect each security toreturn next year. The expected return on the market portfolio is13%, and the relevant risk-free rate is 5.5%.SecurityBetaExpected return (based on your analysis)A1.3014.0%B0.8512.5%C0.207.0%D2.1028.0%Based on your analysis, which of the securities isoverpriced?A) Security AB) Security BC) Security CD) Security D

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