Problem 13-19 Reward-to-Risk Ratios [LO4]

Stock Y has a beta of 1.0 and an expected return of 13.0 percent. Stock Z has a beta of 0.5 and an expected return of 7.8 percent. If the risk-free rate is 5.5 percent and the market risk premium is 6.5 percent, the reward-to-risk ratios for stocks Y and Z are and percent, respectively. Since the SML reward-to-risk is percent, Stock Y is (Click to select)overvaluedundervalued and Stock Z is (Click to select)overvaluedundervalued. (Round your answers to 2 decimal places. (e.g., 32.16))