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Problem 11-19 Reward-to-Risk Ratios [LO 4 Stock Y has a beta of 1.45 and an expected return of 16.3 percent. Stock Z has a beta

Problem 11-19 Reward-to-Risk Ratios [LO 4

Stock Y has a beta of 1.45 and an expected return of 16.3 percent. Stock Z has a beta of 0.9 and an expected return of 12.6 percent.

Required:

If the risk-free rate is 5.4 percent and the market risk premium is 7.9 percent, are these stocks correctly priced?

Stock Y (overvalued or undervalued)
Stock Z (overvalued or undervalued)

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