Part 1: Twitter has an expected rate of return of 13% and a beta of 1.15. The risk-free rate is 5% and the market expected rate of return is 15%. According to the capital asset pricing model, is Twitter fairly priced, overpriced or underpriced?
Part 2: You have $500,000 available to invest. The risk-free rate as well as your borrowing rate is 8%. The return on the risky portfolio is 16%. If you wish to earn a 20% return, how much you should invest in the risky portfolio?