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Risk & Return: Q=1.25;RF=2%;andRM=12%;andRQ=13.5% a.m.m. Find Treynor's Ratio for Q and compare it to Treynor's Ratio for M. Does this analysis indicate whether Q is
Risk \& Return: Q=1.25;RF=2%;andRM=12%;andRQ=13.5% a.m.m. Find Treynor's Ratio for Q and compare it to Treynor's Ratio for M. Does this analysis indicate whether Q is underpriced, over-priced, or correctly priced? (6 points) bermm Find the equilibrium rate of return for stock Q. Does this analysis indicate whether Q is underpriced, over-priced, or correctly priced? (6 points) c. (i) Combine Q and F so that its beta is identical to M. Show the level of return. Call this combination portfolio P. ( 5 points) (ii) Find the level of arbitrage return from selling P and buying M. (4 points) c.mm. Is there a relationship between Jensen's Alpha and the arbitrage level of return? Explain. Note: Responding only yes or no is insufficient. (4 points)
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