Question: Using the information below Realized Return Beta Treasury Bills 3% 0 Market Portfolio 11% 1 Stock X 13% 1.2 Stock Y 8% 0.75 Stock Z

Using the information below

Realized Return

Beta

Treasury Bills

3%

0

Market Portfolio

11%

1

Stock X

13%

1.2

Stock Y

8%

0.75

Stock Z

7%

0.5

a) Calculate the alphas of Stock X, Y, Z. Determine if each stock is fairly priced, overpriced or underpriced. (6 pts) b) Assume you have $10,000 in your account to invest. You put $5,000 in Stock X, $1,000 in Stock Y and $4,000 in Stock Z. What is the beta of your portfolio? What is the expected return on your portfolio according to CAPM? How much money do you expect to have in your account at the end of the year? (6 pts)

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