You have been proposed to buy a portfolio with 2 companies: TaylorMade and ReadyMix with the following rates of return (ROR). Year 1 2 3 4 Pi 0.3 0.2 0.2 0.3 ROR of TaylorMade 20% 13% -8% 7% ROR of Ready Mix 16% -10% 12% 26% The current risk free rate is 8%, whereas the market returns have the following estimated probability distribution for the next period: Probability 0.10 0.15 0.50 0.15 0.10 Market Return 7% 7% 10% 13% 13% i) Calculate the risk and return for the portfolio with 50% invested in TaylorMade and 50% in ReadyMix? [6 marks] ii) What is the required return on TaylorMade and ReadyMix if their Beta is 1.20 and 0.85 respectively? [8 marks] Based on the information in part (1) and (i) and the assumptions of CAPM (Er = Rf + [Em-Rf]f), which shares is/are overvalued/undervalued? [6 marks]

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