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7. The following data are available to you as portfolio manager: Security Estimated return (%) Beta A 40 3.0 B 35 2.5 30 1.0 D

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7. The following data are available to you as portfolio manager: Security Estimated return (%) Beta A 40 3.0 B 35 2.5 30 1.0 D 17.5 1.8 E 20.0 1.5 Market Index 25 2.0 Government Security 17 0 a) In terms of the security market line, which of the securities listed above are underpriced? b) Assuming that a portfolio is constructed using equal proportions of the five securities listed above, calculate the expected return and risk of such a portfolio

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