Question 1 Portfolio Theory and CAPM You purchased 2,000 shares of Stock A at price of \$1.00 per share and 1,000 shares of Stock B at price of $2.00 per share. Stock A has a beta value of 1.5, an expected return of 20% and a standard deviation of 30%; and Stock B has a beta value of 0.8, an expected return of 8% and a standard deviation of 20%. The correlation coefficient between the two stock returns is 0.2. The risk-free rate is 4% and the market risk premium is 7%. (a) What are the investment proportions in your portfolio with the two stocks at the time when you purchased their shares? (1 mark) Click and type your answer. (b) Calculate the expected return, the standard deviation of returns, and the beta value for your two-stock portfolio. (3 marks) Click and type your answer. (c) Determine whether each of the two stocks is mispriced according to the CAPM. If a stock is mispriced, you need to indicate whether it is over-priced or under-priced. (3 marks) Click and type your answer. (d) Draw the security market line (SML) and represent Stock A, B, and your two-stock portfolio (denoted as P) in the graph of SML. (Note: A hand drawn graph of SML is acceptable.) (2 marks)