Q16

Your forecasting model projects an expected return of 26.00% for Stock A and an expected return of 45.00% for Stock B. Using the information in questions 13 and 14 and your forecasted expected returns, what is your best estimate of the alpha of your portfolio when using CAPM to determine a fair level of expected return? Is it Overvalued, Undervalue or fair

Info in 13

. The expected rate of return on the market portfolio is 13.25% and the riskfree rate of return is 2.75%. The standard deviation of the market portfolio is 18.50%. What is the representative investors average degree of risk aversion? Note that the degree of risk aversion is shown as a number rather than a percentage. Enter your answer rounded to two decimal places. For example, if your answer is 123.45% or 1.2345 then enter as 1.23 in the answer box.

Info 14

Stock A has a beta of 1.95 and a standard deviation of return of 41%. Stock B has a beta of 3.75 and a standard deviation of return of 65%. Assume that you form a portfolio that is 60% invested in Stock A and 40% invested in Stock B. Using the information in question 13, according to CAPM, what is the expected rate of return on your portfolio? Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.