What return would an investor expect on security with beta

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Reference no: EM132045511

1. Using the security market line, answer the following questions:

a. If the risk free rate is 6% and the return on the market portfolio is 11.4%, what return would an investor expect on a security with a beta of 1.35?

b. If the potential investor observes that the stock is yielding 14.5% in the current market, is this stock overpriced or underpriced? Explain.

c. Given your answer in (b), what should happen to the price of the stock and why?

2. If a security value is a function of the information give in problem 1 and all the participants in the market have access to the same information, why is it that stock prices fluctuate so many times each day?

Reference no: EM132045511

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