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The risk-free rate is 6% and the expected rate of return on the market portfolio is 13% 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 14.051 % b. If the security is expected to return 16%, is it overpriced or underpriced? Underpriced Hints References eBook & Resources Hint#1
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.)
b. If the security is expected to return 16%, is it overpriced or underpriced? 
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a) required return =risk free rate + beta * (market return-risk free rate) 14.75%
0.06+1.25*(0.13-0.06)
b) since expected return is greater than required return , it is underpriced.
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