The expected return on the market is 11.5 percent with a standard deviation of 13 percent and the risk-free rate is 4 percent.Which of the following portfolios are undervalued?

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 11.5 percent with a standard deviation of 13 percent and the risk-free rate is 4 percent.Which of the following portfolios are undervalued?
  
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_34cb_c1d3_bbd8_894c458c67e8_TB1726_11 Price of risk for Portfolio 1 11ea8229_34cb_c1d4_bbd8_b5b2a7e18ef5_TB1726_11 Price of risk for Portfolio 2 11ea8229_34cb_c1d5_bbd8_3198d43071c2_TB1726_11 Price of risk for Portfolio 3 11ea8229_34cb_e8e6_bbd8_7d427d3aef43_TB1726_11 Price of risk for Portfolio 4 11ea8229_34cb_e8e7_bbd8_0b010fe19dfb_TB1726_11

The Expected Return on the Market Is 11