Question
Portfolio Stock A Stock B Total Beta (A+B) P1 1.45 x 100% 0.76 x 0% 1.45 P2 1.45 x 90% 0.76 x 10% 1.381 P3
Portfolio | Stock A | Stock B | Total Beta (A+B) |
P1 | 1.45 x 100% | 0.76 x 0% | 1.45 |
P2 | 1.45 x 90% | 0.76 x 10% | 1.381 |
P3 | 1.45 x 80% | 0.76 x 20% | 1.312 |
P4 | 1.45 x 70% | 0.76 x 30% | 1.243 |
P5 | 1.45 x 60% | 0.76 x 40% | 1.174 |
P6 | 1.45 x 50% | 0.76 x 50% | 1.105 |
P7 | 1.45 x 40 % | 0.76 x 60% | 1.036 |
P8 | 1.45 x 30% | 0.76 x 70% | 0.967 |
P9 | 1.45 x 20% | 0.76 x 80% | 0.898 |
P10 | 1.45 x 10% | 0.76 x 90% | 0.829 |
P11 | 1.45 x 0% | 0.76 x 100% | 0.760 |
R = Rf + Bp (Rm-Rf)
P1 = 2% + 1.45 (9% - 2%) = 12.15 %
P2 = 2% + 1.381 (9% - 2%) = 11.67%
P3 = 2% + 1.312 (9% - 2%) = 11.184%
P4 = 2% + 1.243 (9% - 2%) = 10.701%
P5 = 2% + 1.174 (9% - 2%) =10.218%
P6 = 2% + 1.105 (9% - 2%) =9.735%
P7 = 2% + 1.036 (9% - 2%) = 9.252%
P8 = 2% + 0.967 (9% - 2%) = 8.769%
P9 = 2% + 0.898 (9% - 2%) = 8.286%
P10 = 2% + 0.829 (9% - 2%) = 7.803%
P11 =2% + 0.760 (9% - 2%) = 7.32%
TASK: Which portfolio(s) is/are overvalued and undervalued? PLEASE ANSWER USING CAPM AND SML JUSTIFICATIONS
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