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If the expected return and risk of the market portfolio are respectively 15% and 20% and the riskless rate is 2.5% use the CAPM to determine if the following stocks are mispriced:  Stock  Expected Return  beta    Portillo’s 7.5% 0.75   Redbirds Dogs 8.5% 0.90   Windy City Wieners 9.5% 1.25    If mispriced, which is (are) underpriced and which is (are) overpriced?

If the expected return and risk of the market portfolio are respectively 15% and 20% and the riskless rate is 2.5% use the CAPM to determine if the following stocks are mispriced:  Stock  Expected Return  beta    Portillo’s 7.5% 0.75   Redbirds Dogs 8.5% 0.90   Windy City Wieners 9.5% 1.25    If mispriced, which is (are) underpriced and which is (are) overpriced?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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If the expected return and risk of the market portfolio are respectively 15% and 20% and the riskless rate is 2.5% use the CAPM to determine if the following stocks are mispriced: 

Stock  Expected Return  beta   
Portillo’s 7.5% 0.75  
Redbirds Dogs 8.5% 0.90  
Windy City Wieners 9.5% 1.25  

 If mispriced, which is (are) underpriced and which is (are) overpriced?

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