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Part 2 Show your work. Your credit is based on your work. Q18. (10 marks) Use the info in the table for all sub-questions, which are stand-alone questions. The expected return on the market portfolio is 14% p.a., with a standard deviation of 0.10. expected return stdev beta Stock 1 6% 0.12 0.4 Stock 2 16% 0.14 1.2 Market 14% 0.10 (1) Currently the risk-free rate is 4% p.a. Find out if Stock 1 is correctly priced, overpriced or underpriced. Ans: (2) Consider stock 1 and stock 2. If both stocks were correctly priced via CAPM, what should be the risk-free rate? Ans: % (3) Currently the risk-free rate is 4% p.a. Find out if Stock 1 is above, below or on the Capital Market Line (CML). Ans