Question
Suppose you observe the following situation: Security T20.0 T15.0 Beta 2.39 0.77 Expected Return 20.0 15.0 Requirement-A. If the current market data shows that the
Suppose you observe the following situation:
Security | T20.0 | T15.0 |
Beta | 2.39 | 0.77 |
Expected Return | 20.0 | 15.0 |
Requirement-A. If the current market data shows that the risk-free rate is 3.94 percent, are these securities correctly priced? <1 mark>
Requirement-B. What would the risk-free rate have to be if these securities are correctly priced? <1 mark>
Requirement-C. If these two securities are correctly priced, find the market risk premium (using the findings of Requirement-B). <1 mark>
Requirement-D. Draw the Security Market Line (SML) with clear labels, and plot these two securities on the graph along with the market and risk-free rate (using the findings of Requirements B and C). <1 mark>
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