The expected return on the market is 12 percent with a standard deviation of 16 percent and the risk-free rate is 4.5 percent.Which of the following portfolios are overpriced?

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

Question

The expected return on the market is 12 percent with a standard deviation of 16 percent and the risk-free rate is 4.5 percent.Which of the following portfolios are overpriced?
  
A) 1 and 3 only 
B) 1 and 4 only 
C) 2 and 3 only 
D) 2 and 4 only

Quizplus · Accepted Answer

Market risk premium = 12% - 4.5% = 7.5%
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The Expected Return on the Market Is 12 Percent with a Standard