Please provide the detailed steps to arrive at the answer below. I am not understanding how to even get started with this question. What would the recommendation be?
Given the following information for the two stocks: Stock Expected Return Standard
Deviation Investment Beta A 16% 3% $30,000 1.2 B 15% 10% $20,000 0.8 You construct a portfolio composing of stocks A and B according to the above information. Assume that the risk free rate is 6% and the market risk premium (MRP) is 9%. Use the CAPM analysis to numerically determine whether this 2stock portfolio is fairly priced? What is your investment recommendation on this portfolio? Why?
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