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Stock Y has a beta of 1.2 and an expected return of 11.1%. Stock Z has a beta of .80 and an expected return of
Stock Y has a beta of 1.2 and an expected return of 11.1%. Stock Z has a beta of .80 and an expected return of 7.85%. The current risk-free rate is 2.4% and the market risk premium is 7.2%.
Are both these stocks priced correctly? (HINT: For pricing to be fair the reward-to-risk ratio must be the same for all assets in the market).
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