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Stock Xyz has a market beta of 0.8. The risk-free rate is 2%, and the market risk premium equals 5%. Compute the expected return for

Stock Xyz has a market beta of 0.8. The risk-free rate is 2%, and the market risk premium equals 5%.

  1. Compute the expected return for stock XYZ
  2. Assume the true expected return is 7%. What is stock XYZs alpha? (Assume that the CAPM is the correct asset pricing model.)
  3. Is stock XYZ fairly priced, underpriced, or overpriced? Please explain your answer for full credit.

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