a). Using the CAPM, find the expected rate of return from security E and security F.

b). indentifies which of securities E and F is underpriced or overpriced?

The following information relates to questions 20 and 21 . In an economy, market risk premium is 10% over the risk-free rate of return of 4.5%. A portfolio manager observes two securities, E and F, with the systematic beta coefficients 0.70 and 1.60 respectively. The manager has also calculated realised returns from both the securities and found that the realised return from security- E is 12.50% and from security- F is 15.10%