The expected return on the market is 14 percent with a standard deviation of 18 percent and the risk-free rate is 5 percent.Which of the following portfolios are underpriced?

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

Question

The expected return on the market is 14 percent with a standard deviation of 18 percent and the risk-free rate is 5 percent.Which of the following portfolios are underpriced?
  
A) 1 and 2 only 
B) 1 and 3 only 
C) 2 and 3 only 
D) 3 and 4 only

Quizplus · Accepted Answer

Market risk premium = 14% - 5% = 9%
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The Expected Return on the Market Is 14 Percent with a Standard