Problem 12-10 CAPM and Expected Return (LO2)

The risk-free rate is 4% and the expected rate of return on the market portfolio is 9%.

a.	Calculate the required rate of return on a security with a beta of 1.21. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Required return

%

b.

If the security is expected to return 13%, is it overpriced or underpriced?

	Underpriced
	Overpriced