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Stock Y has a beta of 1.8 and an expected return of 18.2 percent. Stock Z has a beta of .8 and an expected return
Stock Y has a beta of 1.8 and an expected return of 18.2 percent. Stock Z has a beta of .8 and an expected return of 9.6 percent. If the risk-free rate is 5.2 percent and the market risk premium is 6.7 percent, the reward-to-risk ratios for stocks Y and Z are and percent, respectively. Since the SML reward-to-risk is percent, Stock Y is (Click to select)undervaluedovervalued and Stock Z is (Click to select)overvaluedundervalued. |
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