To select: Determine stock is overpriced or underpriced. Introduction : The stock is overpriced or underpriced is determine by the value of expected return rate and the equilibrium return rate. If the expected return rate value is less than the equilibrium return rate then that stock is overpriced stock otherwise underpriced stock.

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Chapter 10, Problem 11PS

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To select: Determine stock is overpriced or underpriced.

Introduction : The stock is overpriced or underpriced is determine by the value of expected return rate and the equilibrium return rate. If the expected return rate value is less than the equilibrium return rate then that stock is overpriced stock otherwise underpriced stock.

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Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found to be halfof the required return (RB) on stock B. The risk-free rate (Rf) is one-fourthof the required return on A. Return on market portfolio is denoted by RM. Find the ratioof betaof A(A) tobeta of B(B). Thank you for your help.

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