Recall: and that in CAPM market equilibrium, this ratio should be the same for all stocks.

Question: Stock Y has a beta of 1.4 and a CAPM expected return of 15.3%. Stock Z has a beta of 0.6 and a CAPM expected return of 8.3%. Therefore, the reward-to-risk ratio of stock Y and Z is __________% and ____________%, respectively. This implies that stock Y is UNDERVALUED/OVERVALUED and stock Z is UNDERVALUED/OVERVALUED .

E(RA)- Reward -to - risk ratio