Compute the expected return and risk of a portfolio, Managerial Accounting

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Compute the Expected Return and Risk of a Portfolio?

The subsequent data are presented to you as a portfolio manager

Security

Expected Return         

Beta

Standard Deviation

A

.30

2.0

.50

B

.25

1.5

.40

C

.20

1.0

.30

D

.18

0.8

.25

E

.15

0.5

.20

a. Draw out a security market line. In terms of the security market line, define which of the securities listed above are undervalued and with reason.

b. Supposing that a portfolio is constructed by using equal proportions of the five stocks listed above, compute the expected return and risk of such type of a portfolio.


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