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Required rate of return for a portfolio

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Reference no: EM133122799

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 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.
  2. If you want to hold stock X or Y as a single-stock portfolio, which one should you choose?

Reference no: EM133122799

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