The risk-free rate is 7% and the expected rate of return on the market portfolio is 14%.
a. Calculate the required rate of return on a security with a beta of 1.25. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Required return %
b. If the security is expected to return 17%, is it overpriced or underpriced?
Underpriced
Overpriced