Question 5 (18 marks) Consider the following 2-stock portfolio: Stock Beta Investment Amount $100,000 $60,000 Standard Deviation 10% 25% Expected Return 20% 12% X Y 1.2 0.8 Assume that the risk-free rate is 5 percent and the expected return on the market portfolio is 15 percent. a) Using the CAPM or SML equation, compute the required rate of return of stock X and stock Y. (4 marks) b) Are these stocks overpriced or underpriced? Briefly explain. (6 marks) c) Which stock has higher total risk? Why? (2 marks) Question 5 (18 marks) Consider the following 2-stock portfolio: Stock Beta Investment Amount $100,000 $60,000 Standard Deviation 10% 25% Expected Return 20% 12% X Y 1.2 0.8 Assume that the risk-free rate is 5 percent and the expected return on the market portfolio is 15 percent. a) Using the CAPM or SML equation, compute the required rate of return of stock X and stock Y. (4 marks) b) Are these stocks overpriced or underpriced? Briefly explain. (6 marks) c) Which stock has higher total risk? Why? (2 marks)