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Reward-to-Risk Ratios Stock Y has a beta of 1.15 and an expected return of 11.8 percent. Stock Z has a beta of .85 and an

Reward-to-Risk Ratios

Stock Y has a beta of 1.15 and an expected return of 11.8 percent. Stock Z has a beta of .85 and an expected return of 10.7 percent. For the two stocks to be correctly priced by CAPM, what would the risk-free rate and the risk premium have to be?

a. Please use the Treynor Ratio and answer the questions.

b. Please use the CAPM and answer the questions.

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