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Portfolio manager at collins asset management

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Reference no: EM133120386

You are a portfolio manager at Collins Asset Management. Your research department has developed the information shown in the following table.

 

Estimated expected return

Standard deviation

Correlation with market portfolio

Stock X

8.8%

18.46%

0.3

Stock Y

6.3%

11.75%

0.7

Market index

8.5%

13%

1

T-bills

3%

0

0
  1. Estimate the beta for X and Y.
  2. If the CAPM holds true for both X and Y, what are their required returns?
  3. Identify and justify which stock (stock X or Y) would be more appropriate for an investor who wants to add the stock to a well-diversified equity portfolio.
  4. Estimate the required rate of return for a portfolio formed with 70% of wealth invested in X and 30% invested in Y, and determine if it is undervalued or overvalued.
  5. If you want to hold stock X or Y as a single-stock portfolio, which one should you choose?
  6. NO EXCEL, show your work

Reference no: EM133120386

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