Assignment Instructions
Assignment ID: FG133120386
You are a portfolio manager at Collins Asset Management. Your research department has developed the information shown in the following table.
|
|
Estimated expected return |
Standard deviation |
Correlation with market portfolio |
|
Stock X |
8.8% |
18.46% |
0.3 |
|
Stock Y |
6.3% |
11.75% |
0.7 |
|
Market index |
8.5% |
13% |
1 |
|
T-bills |
3% |
0 |
0 |
- Estimate the beta for X and Y.
- If the CAPM holds true for both X and Y, what are their required returns?
- Identify and justify which stock (stock X or Y) would be more appropriate for an investor who wants to add the stock to a well-diversified equity portfolio.
- Estimate the required rate of return for a portfolio formed with 70% of wealth invested in X and 30% invested in Y, and determine if it is undervalued or overvalued.
- If you want to hold stock X or Y as a single-stock portfolio, which one should you choose?
- NO EXCEL, show your work
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