. . Assume the risk free rate is 2.0% The SP500 is considered the market and is expected to return 12% Today (T=0), you invest $400 in Stock A and $600 in Stock B to create Portfolio A,B Assume there are no taxes or dividends Stock A has a beta of 1.40 and Stock B has a beta of 0.60 Use the CAPM equation to estimate each stock's fair rate of return You believe the stock market inefficient o Your analysis shows Stock A will return 17.5% o Your analysis shows Stock 8 will return 12.5% . 23. Based on your analysis, Stock A is and Stock B is Fill in the blanks. a. overvalued undervalued b. overvalued + fairly valued c. undervalued 7 undervalued d. fairly valued ; overvalued e. undervalued overvalued 24. In class we looked at the historical returns for a AMD and PG. Based on what we learned about beta, Stock A most likely and Stock B most likely Fill in the blanks. a) is a semiconductor company makes consumer staples b) makes consumer staples makes consumer staples c) makes consumer staples is a semiconductor company d) is a semiconductor company is a semiconductor company e) Not possible to determine without knowing the correlation between Stock A and Stock B 1