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Stock Y has a beta of 3 (i.e. high beta stock Y). The equity market risk premium is .06 and the risk free rate is

Stock Y has a beta of 3 (i.e. high beta stock Y). The equity market risk premium is .06 and the risk free rate is .03.

a.) Show where Y would be on the SML.

b.) Your analysts use a variety of different methods to estimate the expected rate of return for stock Y. The consensus estimate is 23.5%. What is the theoretical alpha for Y? Is it likely to be too high or too low?

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