APT Model (Y and Z) - show at least the first line of your calculations(7 marks)

Stocks Y and Z have two risk factors with the following beta coefficients.

The zero-beta return (F ₀) = .01 and the risk premiums for the two factors areF1 (Inflation) = .05 and F2 (Quality) = .12

Stock	F1 beta	F2 beta	Current Stock Price (P0)	Annual Dividend (D1)	Actual P1
Y	-0.5	1.7	$60	$0.00	70
Z	1.3	0.7	$60	$1.80	70

a) Based on the APT model, are stocks Y and Z overvalued, undervalued, or fairly-priced, as at time zero? Show your work (4 marks)

b) Briefly explain, using a specific factor, why regression analysis is used in building a factor-based model? (3 marks)