uni finance

The information of two companies, A and B, are listed in the following table. Suppose the T-bill rate is 2% and the expected market return is 7%, the standard deviation of the market return is 8.5%. Company A B Market forecast return 9.5% 8.5% Standard Deviation of return 20% 10% Beta 1.8 1.1 a) What are the CAPM suggested returns of these two companies? Are they overpriced or underpriced? [4] b) What are the non-systematic risk (residual standard deviation) of Company A and B? [3] Note: Write your name and student ID on the answer sheet