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The return on short-term treasury bills is 3% and the market risk premium is 7%. You generate return forecasts based on your own proprietary model
The return on short-term treasury bills is 3% and the market risk premium is 7%. You generate return forecasts based on your own proprietary model as well as risk measures on the following two stocks: Stock Y 7% Stock X Predicted total (not excess) 15% return based on your forecast B Std. Dev 20% 2 1 15% Are either of the stocks mispriced relative to the CAPM? Assume you trust your return forecasts. X is overpriced, Y is underpriced OY is overpriced, X is underpriced Both stocks are fairly priced Both stocks are overpriced Both stocks are underpriced
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