1. Grace Corporation owneda portfolio named Portfolio X consistingof the following stocks:

Stock	Percentage of Portfolio (10%)	Beta	Expected Return (%)
1	10	1.00	12
2	25	0.75	11
3	15	1.30	15
4	30	0.60	9
5	20	1.20	14

 

The risk-free rate is 4 percent and the expected return onthe market portfolio is 10 percent.

Required:

1. Calculate the expected return of the portfolio.

1. Calculate the portfolio beta.

1. Calculate the required rate of return of each stock in the portfolio as well as Portfolio X. (Use CAPM approach)

1. Determine whether Portfolio X is undervaluedor overvalued.Give reasons why.

Answer rating: 100% (QA)

To calculate the expected return of the portfolio well use the weighted average formula Expected Return of Portfolio Percentage of Stock Expected Retu... View the full answer