1.

Following information is provided:

Stock A B
Expected return 32 27%
%
Beta 1.5 0.7
Returns of T- Bill is 20% and return of Sensex is 28%. Calculate the return as per CAPM
for each of the company’s stock. Plot them on SML. Identify whether they are
underpriced, overpriced or correctly priced and advise accordingly.

2. Neha is seeking to know whether the security of ABC Ltd, is correctly priced or not. The
following details are available about the stock: The standard deviation of the stock is 27
percent. The correlation coefficient for the security with the market is 0.75 and the
market standard deviation is 20 percent. The return from the Government Securities is 8
percent and that from the market portfolio is 22 percent. If the expected return on the
stock is 19%, find the required return as per CAPM and advise.

3. Returns of T- Bill is 7%. Calculate the return as per CAPM for each of the company’s
stock. Plot them on SML. Identify whether they are underpriced, overpriced or correctly
priced and advise accordingly.

Stock expected Standard Beta

Return Deviation

Infosys 24% 43% 0.7

HUL 19% 26% 0.5

Reliance 11% 39% 1.2

Industries

SBI 15% 39% 1.2

Sensex 15% 24%

4. Consider the following information:

Expected return on market 15%
Required rate of return on stock X as per 13.2%
CAPM
 Beta of stock X 0.8
Expected rate of return on stock X 15%

Is the stock underpriced or over priced?