You are given the following information on five stocks: The risk-free rate is 4% and the market

Question:

You are given the following information on five stocks:

Expected Return Beta Five Star Properties Royal Paper Products Fairway Golf Products SPEC Engineering Diamond Technology

The risk-free rate is 4% and the market risk premium is 5%.

a. Which stocks are (a) undervalued, (b) overvalued, and (c) correctly valued?

b. What would be the expected return and beta of a portfolio made up of only the stocks that are correctly valued and undervalued? Assume that each stock in the portfolio has an equal weighting.

Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...

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