Question # 1.

In an investment market, understanding the concept of undervalued and overvalued stocks is very important. Hence, a prudent investor must have good knowledge about Beta, Market Rate of Return and Risk Free Rate of Return.

a) Being an investor, critically analyse the conditions of undervalued and overvalued stocks.

b) Give a graphical example to present the positioning of:

1. Systematic risk

2. Risk free rate of return

3.Market rate of return, and

4.Risk premium.