Calculate the expected return for each stock assuming the Capital Asset Pricing Model (CAPM) is valid, and explain if they are correctly priced. Show your calculations.

Consider the following information in Table 3 for stocks A and B. Table 3 Forecasted Return (%) Standard Deviation (%) Stock A 11% B 13% The risk-free rate of return is 5%, the expected rate of return on the market index is 11%, and the standard deviation of the market index returns is 15%. CAPM-beta 0.7 1.4 25% 20%