The expected return on the market is 12 percent with a standard deviation of 15 percent and the risk-free rate is 4.5 percent.Which of the following portfolios are overvalued?

A) 1 and 2 only
B) 1 and 4 only
C) 2 and 3 only
D) 3 and 4 only

Question

The expected return on the market is 12 percent with a standard deviation of 15 percent and the risk-free rate is 4.5 percent.Which of the following portfolios are overvalued?
  
A) 1 and 2 only 
B) 1 and 4 only 
C) 2 and 3 only 
D) 3 and 4 only

Quizplus · Accepted Answer

Market price of risk 11ea8229_34cc_d34f_bbd8_dff34cd9ce85_TB1726_11 Price of risk for Portfolio 1 11ea8229_34cc_fa60_bbd8_f7f9e674cd11_TB1726_11 Price of risk for Portfolio 2 11ea8229_34cc_fa61_bbd8_f760f38b07f4_TB1726_11,Undervalued.
Price of risk for Portfolio 3 11ea8229_34cc_fa62_bbd8_6f249a4028d7_TB1726_11 Price of risk for Portfolio 4 11ea8229_34cd_2173_bbd8_8f897e0ea2bf_TB1726_11

The Expected Return on the Market Is 12 Percent with a Standard