The following table contains forecasts for shares of Mellatte Corporation and the market portfolio. The risk-free interest rate is 5%.

Based on the CAPM, are Mellatte shares fairly priced? Explain carefully and completely. Show the calculations used to support your answer. Show all work. Label and clearly explain your answer. This is very important. You must explain how you arrived at your answer in order to get full credit.

Expected Return 0.08 0.09 Covariance (Mellatte, Market) = +0.03 Risk-free interest rate = 5% Mellatte Corporation Market Portfolio Standard Deviation 0.16 0.14