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0.8 7-19 You are given the following information on five stocks Line Expected Return Beta Five Star Properties 8% Royal Paper Products 14% 1.6 Fairway

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0.8 7-19 You are given the following information on five stocks Line Expected Return Beta Five Star Properties 8% Royal Paper Products 14% 1.6 Fairway Golf Products 10% 1.4 SPEC Engineering 14% 2.0 Diamond Technology 11% 1.2 The risk-free rate is 4% and the market risk premium is 5%. a. Which stocks are (a) undervalued, (b) overvalued, and (d 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

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