A portfolio consists of two stocks SA and SB. Their shares, prices, expected return rates, annualized volatility and beta are given below:

The correlation between SA and SB returns is 0.65. The expected return rate of the market is 12%, the market return volatility is 30%, and the risk free rate is 2%. Returns of all risky assets follow normal distributions.

a) According to CAPM, are SA and SB under-valued, over-valued or fair valued?

A B #shares 100000.0 50000.0 price 50.0 100.0 expected return 8.000% 18.000% volatility 20.0% 40.0% beta 60.0% 120.0%