Stocks	Mean Return	Variance of Return
X	2	2.25
Y	4	36
Z	6	4
Stocks	Mean Return	Variance of Return
X	2	2.25
Y	4	36
Z	6	4

Solve the following questions using the data given below

Correlations
X and Y	X and Z	Z and Y
0.5	0.2	0.9

Covariance with the market
X	0.2
Y	0.5
Z	0.7

Market Variance

0.5

Other Betas	HML	SMB
X	0.3	1
Y	0.4	1.2
Z	0.5	0.7

	Risk Premiums
RF	2%
Market	7%
HML	3%
SMB	9%

Portfolio : X (30%) - Y (40%) - Z (30%)

1. What are required rate of returns on X, Y, Z based on CAPM and FF3 factor models?

	CAPM	FFF3
X
Y
Z

2. Using the average returns as expected returns, determine whether X,Y,Z are overvalued, undervalued, fairly priced based on CAPM model.

	Overvalued	Undervalued	Fair Price
X
Y
Z