investments

Risk \& Retum: Q=1.25;RF=2%; and RM=12%; and RQ=13.5% a. Find Treynor's Ratio for Q and compare it to Treynor's Ratio for M, Does this analysis indicate whether Q is underpriced, over-priced, or correctly priced? (6 points) b. Find the equilibrium rate of return for stock Q. Does this analysis indicate whether Q is underpriced, over-priced, or correctly priced? (6 points) c. (1) Combine Q and F so that its beta is identical to M. Show the level of return. Call this combination portfolio P. (5 points) (ii) Find the level of arbitrage retum from selling P and buying M. (4 points) C. Is there a relationship between Jensen's Alpha and the arbitrage level of return? Explain. Note: Responding only yes or no is insufficient. ( 4 points)