Struggling on the questions below - please help Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to pay returns of 15% with the standard deviation equal to 20%....

Struggling on the questions below - please help

Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to pay returns of 15% with the standard deviation equal to 20%. Asset A pays on average 5%, has standard deviation equal to 20% and is NOT correlated with the S&P500. Asset B pays on average 8%, also has standard deviation equal to 20% and has correlation of 0.5 with the S&P500. Determine whether asset A and B are overvalued or undervalued, and explain why.

(Hint: Beta of asset i (??) =

(?????/??), where ??,?? are standard deviations of asset i and market portfolio, ??? is the correlation between asset i and the market portfolio)

The covariance between stocks A and B is 0.0014, standard deviation of stock A is 0.032, and standard deviation of stock B is 0.044. Which of the following is the most appropriate to depict the risk-return characteristics of a portfolio consisting of only stocks A and B, and explain why?

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