Use the following market and stock specific information to answer this question. Assume you create your own portfolio made up of the four individual stocks shown below. The weighting of the porfolio is 15% stock W, 15% stock X, 20% Stock Y and 50% stock Z. If a Treasury Bill currently sells for $970.05 and if firm Y is expected to pay a constant annual dividend of $1.50 per share, and if the stock is currently selling for $4.25 per share, what is your opinion of the stock price?

Time Period #	Market Return	Firm W	Firm X	Firm Y	Firm Z	T-Bill
1	0.333	0.191	0.218	0.955	0.601	0.035
2	-0.144	-0.423	-0.632	-0.747	-0.472	0.039
3	0.143	0.348	0.470	0.379	0.378	0.040
4	0.316	0.871	0.868	-0.192	0.502	0.036
5	0.178	0.912	0.499	0.694	0.364	0.036
6	-0.014	0.532	0.168	-0.671	-0.064	0.038
119	0.374	0.556	1.014	0.023	0.698	0.037
120	0.173	0.547	0.092	0.658	0.222	0.036
Average Return	0.082	0.113	0.067	0.167	0.121	0.029
Standard Deviation	0.156	0.369	0.497	0.398	0.456	0.011
Beta	1.00	1.21	0.89	1.41	1.25	0.00

Multiple Choice

• The stock is undervalued

• The stock will mirror market returns

• The stock is over-valued

• The stock is at equilibrium

• There is not enough information to answer this question