Five securities A, B, C, D and E are trading on a common Stock Exchange with betas, prices, dividends and required rates of return as given in the table below. a) Calculate the required rates of...

Five securities A, B, C, D and E are trading on a common Stock Exchange with betas, prices, dividends and required rates of return as given in the table below.

a) Calculate the required rates of return on the stocks using the CAPM given that the Stock Exchange’s market return is 20% and the risk-free rate of return is 12%;

b) Compute the stocks’ estimated market returns (holding period returns) and alphas using the given financial data above;

c) Draw an SML and show the positions of the stocks based on their alpha coefficients in (b) above;

d) Determine the fairly, over and undervalued stocks and explain what their holders should do in each case to earn arbitrage profit.