(c) The rank order is the same as in (b), which is from low risk to high risk.
(d) Ivy does because it has the same risk as measured by the standard
deviation.
Ri = 8 + 4bi
(c) Funds 1, 3, and 4 are undervalued because each has an expected return
greater than its required return as given by the SML.
9-4. (a) In order to calculate the beta for each stock, it is necessary to calculate
each of the covariances with the market, using the correlation coefficient for the
stock with the market, the standard deviation of the stock, and the standard
deviation of the market.
beta = 360/(20)2 = .9
(b) From the SML, Ri = 8 + (12-8)bi
= 6 + [E(RM - 6] 1.1
Therefore,
CFA
9-7. d