The question is to answer only italazied section at the bottom.

If you made an equal dollar investment in each stocks what would be the beta of your portfolio? Please show your work.

Beta of a portfolio is weighted average of individual holdings

Beta of portfolio (50%, 50%) = 0.5*1.43 + 0.5*1.39 = 1.41

If you made 70% of dollar investment in stock A, and 30% of dollar investment in stock B, what would be the beta of your portfolio? Please how your work.

Beta of portfolio (70%, 30%) = 0.7*1.43 + 0.3*1.39 = 1.418

Apply the Capital Asset Pricing Model (CAPM) Security Market Line to estimate the required return on both stock. Note that you will need the risk-free rate and the market return.

a) To get the current yield on 10-year Treasury securities go to Finance!Yahoos at www.finance.yahoo.com -click on Market Data - U.S. Treasury Bonds. You will use the current yield on 10-year Treasury securities as the risk-free rate to estimate the required rate of return on stocks.

10-year yield is 2.26

b) Between 1926 and 2014, the compound annual rate of return of S&P 500 is estimated a 10.5%. We will use this number as the market return.

c) Calculate the required return on both stock using the Capital Asset Pricing Model (CAPM) Security Market Line. Please show your work.

Market return = 10.5%

risk-free rate = 5.5%

Return on Apple Stock = 5.5 + 1.43*(10.5 5.5) = 12.65%

Return on Microsoft Stock = 5.5 + 1.39*(10.5 5.5) = 12.45%

Find on the Internet the 52-weeks change of the stock price. Compare the required return on these stocks calculated using CAPM against their historical return over the last 52 weeks. Is there a difference between these returns? Are these stock overvalued, undervalued, or properly valued? Why? In accordance with your founding, is it reasonable for the investor to buy any of these stocks? Explain your answers.

Apple 52-week change in stock price is 156.65 Initial investments $145.40x200 Historical payout in dividends is .63 (May 2017)and .57 (Feb 2017)

Microsoft 52-week change in stock price is 72.89 Initial investments $70.42x100 Historical payout dividends is .39 (May and Feb 2017)