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Stock Y has a beta of 1.2 and an expected return of 11.4%. Stock Z has a beta of 0.80 and an expected return of
Stock Y has a beta of 1.2 and an expected return of 11.4%. Stock Z has a beta of 0.80 and an expected return of 8.06%. If the risk-free rate is 2.5% and the market risk premium is 7.2%, the reward-to-risk ratios for stocks Y and Z are and %, respectively. Since the SML reward-to-risk is 1%, Stock Y is undervalued and Stock Z is overvalued (Do not round intermediate calculations. Round the final answers to 2 decimal places.)
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