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12. The Capital Asset Pricing Model and the security market line Keith holds a portfolio that is invested equally in three stocks (wD=wA=w1=1/3). Each stock
12. The Capital Asset Pricing Model and the security market line Keith holds a portfolio that is invested equally in three stocks (wD=wA=w1=1/3). Each stock is described in the following table: An analyst has used market- and firm-specific information to make expected resturn estimates for each stock-The:analyst's expected retum estimates may or may not equal the stocks' required returns. The risk-free rate [rRFK] is 6%, and the market risk premium [RPM] is 4%. Use the following graph with the security market line (SML) to plot each stock's beta and expected return. Tool tip: Mouse over the points in the graph to see their coordinates. A stock 5 in equibrium if its required return its expected recum. In general, assume that markets and stocks arein equilibinum cor undervalued or ovenkiluedi, Based on the analyst's expected return estimates, stock INO is , stock AlLis in equilibrium, and stock DET is its expected retum. In gens = different opinions about a stock's prospects and overvalued nalyst's expected return estimates, stock INO is
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