Q.No.4. (Marks 2+2+1=5)

Qarshi Industries is a very well-profiled Company in financial markets of Pakistan. The company is confused about the assessment of investments. Help the company in evaluating the risk and return of the company investments, by considering your understanding of Security market line and the given information about company investments:

1. If the risk-free rate is 4.5% and the equity risk premium is 6%, find out if the below investments are overvalued or undervalued given their beta coefficient and required rate of return observed using the dividend discount model:

Stock	Beta	Observed Required Return
A	1.1	8%
B	1.3	12%
C	1.2	9%
D	1.9	15%
E	0.7	7%

Plot the Security Market line for the company securities, using the capital asset pricing model equation.

2. For Qarshi Industries, the market and Stock J have the following probability distributions:

Probability	Rm	Rj
0.3	15%	10%
0.4	9%	5%
0.3	8%	12%

1. Calculate the expected rates of return for the market and Stock J.
2. Calculate the standard deviations for the market and Stock J.
3. Calculate the coefficients of variation for the market and Stock J.