MINI-CASE-V5.37Z14.1

Suppose you observe the following situation: Security M22.1 M14.1 Realised Return 14.1% 22.1% Beta 0.62 2.13 The current market data shows that the risk-free rate is 5.37 percent and the expected market rate of return is 13%.

Requirement-A. What are the expected returns from these two securities under the CAPM? <1 mark>

Requirement-B. Are these securities fairly priced? Comment on your answer. <1 mark>

Requirement-C. Calculate the reward-to-risk ratios for these two securities. <1 mark> Requirement-D. Calculate the expected return and beta of an equally weighted portfolio of these two securities. <1 mark>