The expected market return, Rm = 12%. The expected return on a risk-free asset, Rf = 5%.

a) Stock A has a beta of 0.8. What is the expected return of stock A according to CAPM? If stock A offers an actual return of 7%, is stock A overvalued or undervalued?

b) Stock B offers a return of 15%. If stock B is correctly priced by CAPM, what is the beta of Stock B?

c) If you want to hold both Stock A and Stock B in a portfolio, and you want to make your portfolio beta exactly equal to the market beta. Then, what should be your portfolio weights on Stock A and Stock B, respectively?

a) 10.6% and Stock A is overvalued

b) 1.429

c) Need assistance please