1. Wilson is now considering the expected performance of two stocks, Furhman Labs

Inc and Garten Testing Inc. He gathered the following information (Chapter 9)

The risk free rate is 5%.The expected return on market portfolio is 11.5%. The beta of

Furham stock is 1.5 and the beta of Garten stock is 0.8.

a. If Wilson would like to create a portfolio with 60% of Furham stock and 40% of

Garten stocks, what is the beta of the portfolio?

b. Please write down Capital Asset Pricing Model for these two stocks respectively

c. Please calculate expected rate of return for these two stocks by using CAMP

, respectively

d. Based on his own analysis, Wilson forecasts that Furhmans return is 13.25%,

while Gartens return is 11.25%. Please compare his forecasts to the stocks

required rate of return and indicates if each stock is undervalued, fair valued, or

overvalued.