If the risk-free rate is 6 percent and the expected rate of return on the market portfolio is 14 percent, is a security with a beta of 1.25 and an expected rate of return of 16 percent overpriced or underpriced?© BrainMass Inc. brainmass.com October 9, 2019, 7:34 pm ad1c9bdddf
CAPM (Capital Asset Pricing Model equation is:
r A= r f + beta A (r m - r f)
risk free ...
The solution calculates Expected Return using Capital Asset Pricing Model (CAPM) and finds out whether security is underpriced or overpriced.