Assume that the market risk premium is equal to 4%, and the risk-free rate is equal to 2%. Do stock B correctly priced, overpriced or underpriced?

You are analyzing the returns of stock A and stock B. See the table below. You have collected the following. Stock Bs systematic risk is double the risk of the market portfolio.

	Stock A	Stock B	market
correlation with market	0.3
stdev		0.1389	0.05
E(r)		0.1
cov (A, B)	0.0093
Portfolio weight	0.5	0.5
State	prob	Stock A
Boom	0.2	0.01
Normal	0.5	0.15
Bust	0.3	0.2