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Risk - free rate ( Rf ) Beta of the security ( beta i ) Market Return ( Rm ) Market Risk Premium (

Risk-free rate (Rf) Beta of the security (\beta i) Market Return (Rm) Market Risk Premium (Rm-Rf) CAPM return of the security (Ri) Actual Return of the security E(Ri) Reward-to-risk Ratio (E(Ri) Rf)/\beta i) Alpha
5.7%0.912.4%6.70%11.73% Y 12.60%7.67%0.87% Positive Alpha is UNDERPRICED
5.7%0.612.40%6.70%9.72% Z 9%5.33%-0.82% Negative Alpha is OVERPRICED
Risk-free rate (Rf) Beta of the security (\beta i) Market Return (Rm) SML = Market Risk Premium (Rm-Rf) CAPM return of the security (Ri) Actual Return of the security E(Ri) Reward-to-risk Ratio (E(Ri) Rf)/\beta i) Alpha
5.5%1.512.0%6.50%15.25% Y 16.10%7.07%0.85% Positive Alpha is UNDERPRICED UNDERVALUED
5.5%112.00%6.50%12.00% Z 11%5.70%-0.80% Negative Alpha is OVERPRICED OVERVALUED

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