Question $4$

The expected return on the market portfolio is $10\%.$ The yield on the Treasury bill $($risk free rate$)$

is $1\%.$ Among the following stocks, which one is overpriced $($negative $)$ according to the CAPM?

$($A$)$ Stock A with expected return $=10\%$ and market beta $=1\mathrm{.}2$

$($B$)$ Stock B with expected return $=11\%$ and market beta $=0\mathrm{.}9$

$($C$)$ Stock C with expected return $=9\%$ and market beta $=0\mathrm{.}8$

$($D$)$ Stock D with expected return $=20\%$ and market beta $=1\mathrm{.}5$

$($A$)10\%-1\%=1-2C10\%-1\%$

Question $5(1$pt$)$

The table below shows regression results to estimate alphas and betas of four stocks. That is$,$ the

regression coefficients of regressing the return of stock $i=A,B,C,D$ on market return respectively.

Which stock has the highest market risk? $(0\mathrm{.}5pt)$

Which stock$($stocks$)$ is$($are$)$ significantly overpriced according to the CAPM? $(0\mathrm{.}5$pt$)$