Question
Suppose you observe the following situation: Security T22.5 T15.9 Beta 1.94 0.72 Expected Return 22.5 15.9 Requirement-A. If the current market data shows that the
Suppose you observe the following situation:
Security T22.5 T15.9
Beta 1.94 0.72
Expected Return 22.5 15.9
Requirement-A.If the current market data shows that the risk-free rate is 4.16 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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