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Let there are two stocks: Stock A and Stock B. The expected returns of Stock A and Stock B are 18% and 10.5% respectively. The

Let there are two stocks: Stock A and Stock B. The expected returns of Stock A and Stock B are 18% and 10.5% respectively. The beta of Stock A and Stock B are 1.50 and 0.80 respectively. Suppose the risk-free rate of return is 5.5% and the market risk premium is 7.5%.

Which of the following statements is most correct?

0 I do not want to answer this Question
1 Stock A is over-priced and Stock B is under-priced.
2 Stock B is over-priced and Stock A is under-priced.
3 Both the Stock A and Stock B are over-priced.
4 Both the Stock A and Stock B are under-priced.

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