You have following investments in securities A, B and C.
Security Amount Invested Beta Expected one year return
A £10,000 1.15 14%
B £10,000 1.90 20%
C £5,000 1.72 18%
The current risk-free rate of interest is 4% and you have heard that analysts are expecting a 12% return on the market portfolio over the next year. Based on your expectations for the 1-year returns of each of the securities is your portfolio under-priced, overpriced or correctly priced?
