1. Two stocks, A and B, on the stock market have beta of 0.45 and 1.5 respectively. If the average return on the market is 7% and the risk-free rate is 5%;

a) Which stock is more volatile to market conditions?

b) Which stock would be compensated higher for market risk?

c) Given that the average return on A and B are 8% and 7% respectively, which of the stocks is undervalued and which is overvalued?