You have observed the following returns over time:
2006- stock x 14%, stock y 13%, market 12%; 2007- stock x 19%, stock y 7%, market 12%; 2008- stock x -16%, stock y -5%, market -12%; 2009- stock x 3%, stock y 1%, market 1%; 2010- stock x 20%, stock y 11%, market 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 under- or overvalued?