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Q4. The following table shows information on the standard deviation (σj) in returns of two assets...

Q4.

The following table shows information on the standard deviation (σj) in returns of two assets X and Y, and the overall market; and the correlation coefficient (ρjm) between the market and the two assets. You are told that last year the mean rates of return for X and Y were 5.5% and 6.9% respectively. The risk-free rate of return was 3% and the market portfolio rate 8% in this period. What would you infer in terms of undervaluation or overvaluation of these assets from their predicted CAPM return?

Asset (σj) (ρjm)
X 56% .23
Y 89% 0.45
Market 32% 1
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