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Required Rate of Return - Formula

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The market has an expected return of 10% and the risk-free rate is 4%.
Based on the security market line implied by this information,
which of the following securities are correctly priced and which are over/underpriced?

Beta Actual Return

Stock 1 0.60 7.00%
Stock 2 1.00 11.00%
Stock 3 1.30 12.00%
Stock 4 1.70 19.00%

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Solution Summary

The solution computes Required Rate of Return by given appropriate formula.

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Required return = risk free rate + Beta* (Market rate - risk free rate)

Stock ...

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