The stock market is composed by two types of stocks: big size stocks and small size stocks. Assume that these two portfolios are equal in size (market value), the correlation of their returns is equal to 0.6, and the portfolios have the following characteristics:

	Probability	Expected Return	Volatility (SD)
Big size Stocks	0.5	0.20	14%
Small size Stocks	0.5	0.12	24%

The Treasury-bill of one year is 3.5%.

1. How much are the expected return, standard deviation, and Sharpe ratio of the market portfolio?

(2) If there is a stock A, which has a return of 10% and the same beta as the market portfolio. Do you think stock A is undervalued or overvalued? Will you purchase the stock? Please explain.