Calculate the betas of stock x and y

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You have observed the following returns over time:

Year Stock X

  1. 1992 14%
  2. 1993 19
  3. 1994 -16
  4. 1995 3
  5. 1996 20

Stock Y Market

13% 12% 7 10 -5 -12 1 1

11 15

Assume that the risk-free rate is 6 percent and the market return is 11 percent. There is an equal probability for each observation to occur (.2 for each).

A. Calculate the betas of stock X and Y? Also calculate the beta of the market?

B. What are the required rates of return for stock X and Y?

C. What is the required rate of return and beta for a portfolio consisting of 80 percent of Stock X and 20 percent of Stock Y?

D. If Stock X=s expected return is 22 percent, is Stock X under- or overvalued? 

Reference no: EM131893898

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