Question

You have observed the following returns over time:?

Year Stock X Stock Y Market
2006 14% 13% 12%
2007 19 7 10
2008 -16 -5 -12
2009 3 1 1
2010 20 11 15

Assume that the risk free rate is 6% and the market risk premium is 5%
-what are the betas of stocks X and Y
-What are the required rates of return on stocks X and Y
-What is the required rate of return on a portfolio consisting of 80% of stock X and 20% of stock Y
-If stock X's expected return is 22%, is stock X under or overvalued?