Your opinion is that CSCO has an expected rate of return of 0.1375. It has a beta of 1.3. The risk-free rate is 0.04 and the market expected rate of return is 0.115. According to the Capital Asset Pricing Model, this security is A. underpriced. B. overpriced. C. fairly priced. D. Cannot be determined from data provided.

Your opinion is that CSCO has an expected rate of return of 0.1375. It has a beta of 1.3. The risk-free rate is 0.04 and the market expected rate of return is 0.115. According to the Capital Asset Pricing Model, this security is A. underpriced. B. overpriced. C. fairly priced. D. Cannot be determined from data provided.

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter25: Portfolio Theory And Asset Pricing Models

Section: Chapter Questions

Problem 8MC: You have been hired at the investment firm of Bowers & Noon. One of its clients doesn’t understand...

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Your opinion is that CSCO has an expected rate of return of 0.13. It has a beta of 1.3. The risk-free rate is 0.04 and the market expected rate of return is 0.115. According to the Capital Asset Pricing Model, this security is _________ Group of answer choices a. underpriced b. overpriced c. fairly priced d. None of the above
9. Your personal opinion is that security x has an expected rate of return of .11. It has a beta of 1.5. The risk free rate is .05 and the market expected rate of return is .09. According to the Capital Asset Pricing Model, thiss security is a. underpriced. b. overpriced. c. fairly priced. d. can't be determined from data e. none of these.
Suppose the Capital Asset Pricing Model (CAPM) is valid in a market. Use CAPM to ex- plain and answer following questions. Note: There is no relationship between each situation. (a) Can security A exist in the market? (Hint: Security market line) If yes, compute risk premium on security A. If not, is this security underpriced or overpriced? Expected return 5% Asset Beta Risk-free Market 12% 1 A 15% 1.3 (b) Can security B exist in the market? (Hint: Security market line) If yes, compute risk premium on security B. If not, is this security underpriced or overpriced? Expected return 6% Asset Beta Risk-free Market 13% 16.5% 1 1.5 Suppose the expected cash flow can be collected from investment in security B is $1000 at time 1. And an investor thinks the beta of security B is 1.8. But the actual beta is given in the above table. Then how much more/less (you also need to select "more" or "less") will he offer for the firm than it is truly worth at time 0? Hint: the present value of the cash…
Regarding the Security Market Line (SML) and the Capital Asset Pricing Model (CAPM): If the expected return is less than the required return estimated with the CAPM, the expected return will plot below the SML and the asset is considered to be overpriced If the expected return is greater than the required return estimated with the CAPM, the expected return will plot above the SML and the asset is considered to be underpriced If the expected return is greater than the required return estimated with the CAPM, the expected return will plot below the SML and the asset is considered to be overpriced If the expected return is less than the required return estimated with the CAPM, the expected return will plot above the SML and the asset is considered to be underpriced
Security X has an expected rate of return of 13% and a beta of 1.15. The risk-free rate is 5% and the market expected rate of return is 15%. According to the capital asset pricing model, security X is _________. A. fairly pricedB. overpricedC. underpricedD. None of the above
Suppose you observe the following situation:Security Beta Expected ReturnDiamond Co 1.3 0.2Spade Co 0.8 0.14 (a) According to the above information, could we figure out the market return and risk-free rate? Explain your answer. (b) Discuss the possibility of including zero beta or negative beta assets in your portfolio. Explain the pros and cons of including these types of assets.
In the equation for expected return from the CAPM, the only input specific to the firm in question is...O. the risk-free rate.O. the market risk premium.O. beta.O. all of the above.
SITIcation. 24. In the capital asset pricing model, the beta coefficient is a measure of index of the degree of movement of an asset's return in response to a change in risk and an A) diversifiable; the prime rate B) nondiversifiable; the Treasury bill rate C) diversifiable; the bond index rate D) nondiversifiable; the market return 5. Loading document MacBook Air DII DD 80 F7 F8 F9 F2 F3 F4 F5 F6 呂

Expected return
According to the Capital Asset Pricing Model (CAPM), an asset with negative beta: a. Cannot exist b. Is expected to earn a negative return c. Should be short sold d. Will not be included in the market portfolio e. None of the above
a) Suppose the risk-free rate is `X'% and the expected rate of return on the market portfolio is 10%. In your view, the expected rate of return of a security is 12.2%. Given that this security has a beta of 1.4, do you consider it to be overpriced, under-priced or fairly priced according to the Capital Asset Pricing Model? Please provide the details of your calculations and discuss your results. b) Using a graph, explain when a security is overpriced, under-priced or fairly priced according to the Capital Asset Pricing Model. Plot your answer from (a) onto this graph.
What is the expected return of a zero-beta security?a. Market rate of return.b. Zero rate of return.c. Negative rate of return.d. Risk-free rate of return.