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24. Consider the following information. Your portfolio is invested 60 percent in stock A and 40 percent in B. The expected T-bill rate is
24. Consider the following information. Your portfolio is invested 60 percent in stock A and 40 percent in B. The expected T-bill rate is 3 percent. What is the expected risk premium and standard deviation of this portfolio? (10 marks) State of Economy Boom Normal Probability of State of Economy 0.2 0.8 Rate of Return if State Occurs Stock A Stock B 0.17 0.07 0.13 0.10 25. Stock Y has a beta of 1.3 and an expected return of 12.5 percent. Stock Z has a beta of 0.7 and an expected return of 7.1 percent. If the risk-free rate is 2 percent and the market risk premium is 7.5 percent. a. Are these stocks correctly priced? If not, are they underpriced or overpriced? (10 marks) b. What would the risk-free rate have to be for the two stocks to be correctly priced? (5 marks)
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