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expected return on these portfolios

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Assume that both X and Y are well-diversified portfolios and the risk free rate is 8%. Portfolio X has an expected return of 14% and a beta 1. Portfolio Y has an expected return of 9,5% and beta 0,25. In this situation, you would conclude that portfolios X and Y________________

a. Are in equilibrium
b. Offer an arbitrage opportunity
c. Are both underpriced
d. Are both fairly priced
e. Are both overpriced

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Expected return on these portfolios is assessed clearly in the solution.

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Since both portfolios are well diversified, the expected return on these portfolios should follow the CAPM.
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