Question

Suppose that the expected return of the market is 9% and the riskless rate is 3%. According to the CAPM, which of the following securities is mispriced: None of the securities are mispriced. B3 = 1.3, E(r) = 10.8% B2 = 0.6, E(r2) = 6.6% B1 = 0.4, E(r1) = 5.2% B4 = 1.7, E(ra) = 13.2%

Name: suppose that the expected return of the market is 9 and the riskless rate is 3 according to the capm which of the following securities is mispriced none of the securities are mispriced b3 13 38976
Uploaded: 2023-12-20T23:08:24-08:00
Duration: 2 min 57 s
Channel: Akash M
Description: suppose that the expected return of the market is 9 and the riskless rate is 3 according to the capm which of the following securities is mispriced none of the securities are mispriced b3 13 38976

          Suppose that the expected return of the market is 9% and the riskless rate is 3%. According to the CAPM, which of the following securities is mispriced:

None of the securities are mispriced.
B3 = 1.3, E(r) = 10.8%
B2 = 0.6, E(r2) = 6.6%
B1 = 0.4, E(r1) = 5.2%
B4 = 1.7, E(ra) = 13.2%

Added by Gregory N.

Principles of Economics

Gregory Mankiw 8th Edition

Instant Answer

Solved by Expert Akash M

12/20/2023

Step 1

For B1: E(r1) = 3% + 0.4 * (9% - 3%) = 5.4% For B2: E(r2) = 3% + 0.6 * (9% - 3%) = 6.6% For B3: E(r3) = 3% + 1.3 * (9% - 3%) = 10.8% For B4: E(r4) = 3% + 1.7 * (9% - 3%) = 13.2% Comparing these calculated expected returns with the given expected returns, we Show more…

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Suppose that the expected return of the market is 9% and the riskless rate is 3%. According to the CAPM, which of the following securities is mispriced: None of the securities are mispriced. B3 = 1.3, E(r) = 10.8% B2 = 0.6, E(r2) = 6.6% B1 = 0.4, E(r1) = 5.2% B4 = 1.7, E(ra) = 13.2%