Question: Here are data on two companies. The 10-year Treasury Note rate is 4% and the market risk premium is 7%. Company Victoria Store Houston Store

Here are data on two companies. The 10-year Treasury Note rate is 4% and the market risk premium is 7%.

Company	Victoria Store	Houston Store
Forecasted return	16%	15%
Standard Deviation of Returns	16%	15%
Beta	1.4	1

a. Estimate the expected return for each company according to CAPM

b. Characterize each company as underpriced, overpriced, or properly priced according to CAPM

c. Another company, Sugar Land store, has a beta of 2.0. Estimate the expected rate of return for a portfolio consisting of 1/3 Victoria stock, 1/3 Houston stock, and 1/3 Sugar Land store.

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