Andrew has $1,000,000 to invest in a risk-free asset, Stock BB, Stock TC and Stock MT respectively. By investing all money, he aims to create a portfolio that has an expected return of 8.92 percent. The following table shows the expected return of each investment assets: Investment asset Expected return (%) Risk-free asset 3.8 Stock BB 12.6 Stock TC 14.4 Stock MT 6.5

a) If Andrew wants to invest $300,000 in the Risk-free asset, and the investment on Stock TC should be half of the investment in Stock MT, how much will he invest in each of these three stocks?

b) If the expected return on the market portfolio is 11 percent, and the beta of Stock BB, TC and MT are 1.2, 1.5 and 0.8 respectively, with respect to the capital asset pricing model, is each of these three stocks overpriced or underpriced? Briefly explain.