Part A: CAPM Problem 1: CAPM Basic Consider the following information: Portfolio Risk-free Market Portfolio A Expected Return Beta 2% 7% 12.0% (Realized Return) I Required: a. Calculate the return predicted by CAPM for the portfolio A with a beta of 1.2. b. What is the alpha of portfolio A. c. Is the Portfolio A correctly priced by CAPM model? If not, is it overpriced or underpriced relative to CAPM? 1.2 102 1.0

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