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Stock Y has a beta of 1.3 and an expected return of 13 percent. Stock Z has a beta of 0.75 and an expected return

Stock Y has a beta of 1.3 and an expected return of 13 percent. Stock Z has a beta of 0.75 and an expected return of 10.5 percent.

Required: If the risk-free rate is 4.5 percent and the market risk premium is 7 percent, are these stocks correctly priced?

Stock Y

Stock Z

The answer will be overvalued or undervalued.

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