Chapter_7_DocCam - Chapter 7 Example 1 A B C Expected...

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Chapter 7 Example 1 A B C Expected Return 6 % 8% 7% Beta 0.4 0.6 1.1 The risk-free rate is 4% and expected return of the market portfolio is 9%. Based on the given information: a) Are securities A, B, and C overvalued, fairly valued, or undervalued? b) Is a portfolio that invests 10% in security A, 50% in security B and the remainder in security C overvalued, fairly valued, or undervalued?
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Unformatted text preview: 1 Chapter 7 Example II You want to set up a portfolio of two securities, X and Y, with the goal of 11.06% return. Beta of security X is 1.4 while beta of security Y is 0.8 . If the risk-free rate in the market is 5% and the market risk premium is 6% , what should be the portfolio weights of these two securities? 2...
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