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Evaluating expected performance of two sub-portfolios

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Sandra is a Portfolio manager with Money Friends Sana Plc. She is evaluating the expected performance of two sub-portfolios, Wonder and Treasure for possible inclusion in a rebalanced portfolio. She has gathered the following information:

The risk-free rate is 5%

The expected return on the market portfolio is 14%

The beta of Wonder is 1.3

The beta of Treasure is 1.0

??Based on her own analysis, Mary's forecasts of the returns of the two sub portfolios are 17% for Wonder and 15% for Treasure. ?

a) Calculate the required rate of return for Wonder and Treasure.

b) Indicate whether each sub portfolio is undervalued, fairly valued, or overvalued and decide on which sub portfolio to include in the rebalanced portfolio.?????????

Reference no: EM133111974

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