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b. Suppose we observe two stocks with the following characteristics: E_ An asset is said to be undervalued if its price is too low given
b. Suppose we observe two stocks with the following characteristics: \"E_ An asset is said to be undervalued if its price is too low given its expected return and risk. The riskfree rate is currently 6%. Is one of the two stocks undervalued relative to the other? Explain your answer fully {i.e.. provide reasons why you think the stock is or is not undervalued}. {3.5 marks} c. In a wellfunctioning. wellorganized, active market. can a stock tre persistently over or undervalued relative to an average asset in the market? Explain why or why not. How and when is equilibrium achieved? {2 marks}
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