A.portfolio Y only.
B.portfolio X only.
C.both portfolios X and Y because they are both overvalued.
D.either portfolio X or Y because they are both properly valued.
Portfolio X’s required return is 0.05+0.9×(0.12-0.05)=11.3%.It is expected to return 13%.The portfolio has an expected excess return of 1.7%
Portfolio Y’s required return is 0.05+1.1×(0.12-0.05)=12.7%.It is expected to return 14%.The portfolio has an expected excess return of 1.3%.
Since both portfolios are undervalued,the investor should sell the portfolio that offers less excess return.Sell Portfolio Y because its excess return is less than that of Portfolio X.