1. Assume that the expected rates of return and the beta coefficients of the alternatives supplied by an independent analyst are as follows:

Security	Estimated rate of returns	Beta
Nescom	5%	1.5
Market	4	1
Pk_Steel	3.5	0.75
T_Bills	3	0
Nawab	1	-0.6

What is a beta coefficient, and how are betas used in risk analysis?

Do the expected returns appear to be related to each alternatives market risk?

Is it possible to choose among the alternatives on the basis of the information developed thus far?

Assumes that the risk-free rate is 3.0%, and risk premium is expected return on market portfolio less risk.

Write out the security market line (SML) equation; use it to calculate the required rate of return on each alternative?

How do the expected rates of return compare with the required rates of return? Identify the undervalued companies?