You are a portfolio manager at Collins Asset Management. Your research department has developed the information shown in the following table.

	Estimated expected return	Standard deviation	Correlation with market portfolio
Stock X	8.8%	18.46%	0.3
Stock Y	6.3%	11.75%	0.7
Market index	8.5%	13%	1
T-bills	3%	0	0

1. Estimate the beta for X and Y. (3 marks)
2. If the CAPM holds true for both X and Y, what are their required returns? (3 marks)
3. Identify and justify which stock (stock X or Y) would be more appropriate for an investor who wants to add the stock to a well-diversified equity portfolio. (5 marks)
4. Estimate the required rate of return for a portfolio formed with 70% of wealth invested in X and 30% invested in Y, and determine if it is undervalued or overvalued. (5 marks)
5. If you want to hold stock X or Y as a single-stock portfolio, which one should you choose? (4 marks)