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The market portfolio ( M ) provides a 1 5 % annual return with a 2 0 % standard deviation. The risk - free rate
The market portfolio provides a annual return with a standard deviation. The riskfree rate of return is per annum. Security and provide and return per annum and their betas are and respectively. Based on this information Ali drew the following graph of Security Market Line SML to identify any mispricing of security and in the market. Unfortunately, Jenny forgot to label her graph. Help her label the following graph.
i Among the points and on the graph Identify the points that are indicating the locations of security and
ii Based on the information above, do you think security and are mispriced in the market? Explain if these securities are overpriced or underpriced? If security and are not mispriced, then explain why not.
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