MCQ $8$

Suppose that the conclusions of neo$-$classical theory are valid. You have the following information regarding the market portfolio and a given security i in the market:

Covariance Matrix M i

M $6\mathrm{.}25\%0\mathrm{.}5\%$

i $0\mathrm{.}5\%1\%$

The risk$-$free rate is $2\%$;

E$($RM$)=24\%$

Security i has an alpha coefficient of $1\%.$

What can you conclude?

A$.$ The observed return of security i in the market is undervalued.

B$.$ The observed market price of security i is overvalued.

C$.$ Security i is not included in the market portfolio.

D$.$ The market is in equilibrium.

E$.$ The proportion of specific risk in the total risk of security i is $40\%.$

F$.$ The observed return of security i in the market is $4\mathrm{.}76\%.$