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security x 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 security x underpriced, fairly priced, or overpriced? why? (hint: what should be the fair expected returns according to capm?)

Respuesta :

security X is overpriced because if the expected return is lower than the

investor's required return then the security is overpriced

What does overpriced mean?

Overcharging can be harmful since it alienates loyal clients. Businesses that market generic products with unique "benefits" heavily mark the prices. The company's target clientele is more focused because of the high markup and higher quality. Most consumers are unwilling to pay such a high price for a few more perks.

Nevertheless, overcharging is a common practice at locations including movie theatres, airports, and sporting events. Since you are capitalising on a customer's demand for a product, you can set the price based on that need rather than the actual value of the product.

According to the question

expected return= 13%

required return= RF + beta(RM-RF)

                          = 0.05 + 1.15(0.15-0.05)

                          =  0.05 + 0.115

                          = 0.165

                          = 16.5%

thus the expected return is lower than the investor's required return

therefore the security is overpriced

Learn more about overpriced from the link below

https://brainly.com/question/26990784

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