Stock A has a beta of 1 and stock B has a beta of 3. The market return is 10% and the risk-free rate is 2%. The average stock returns over the past year were 5% for stock A and 30% for stock B. Which of the following statements is correct?

1. Stock A is underpriced relative to what is implied by the CAPM.
2. Stock B is underpriced relative to what is implied by the CAPM.
3. Stock B had a lower average return relative to the return implied by the CAPM.
4. None of the statements above is correct.