Security A is priced such that it has an expected return of 11%. The standard deviation of its returns is 15%. Its returns have a coefficient of correlation of 0.80 with returns on the market index or portfolio. Security B is priced such that it has an expected return of 5%. The standard deviation of its returns is 20%. Its returns have a coefficient of correlation of 0.25 with returns on the market index or portfolio. The standard deviation of returns on the market index or portfolio is 10%. The risk free rate is 3.00% and the expected market risk premium is 5.25%.

1) We can say that (NO calculation required):

A. Security A has greater total risk than does Security B.

B. Security A has less total risk than does Security B.

C. Security A and Security B have the same amount of total risk.

D. No statement can be made about the relative total risk of the two securities.

2) Security A has a beta of: 37. Security B has a beta of:

3)The equilibrium expected return on Security A should be:

4) The equilibrium expected return on Security B should be:

5) Which of the following is true, based on the Capital Asset Pricing Model?

A. Security A is overpriced and Security B is underpriced.

B. Security A is underpriced and Security B is overpriced.

C. Both Securities A and B are underpriced.

D. Both Securities A and B are overpriced.