The risk-free rate is 4 and the expected rate of return on


The risk-free rate is 4% and the expected rate of return on the market portfolio is 9%.

a. Calculate the return of a security with a beta of 1.28 and an expected rate of return of 12% (rounded to 2 decimal places)

b. Is the security overpriced or underpriced?

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Financial Management: The risk-free rate is 4 and the expected rate of return on
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