The reward-to-risk ratio for Stock X exceeds that of Stock Y. Stock X has a beta of 1.37 and Stock Y has a beta of.98. Given this, you know for certain that:

Question 16 options:

Stock X is overvalued and has more risk than stock Y.

Stock X will plot above the security market line and Stock Y will plot below the line.

Stock X is undervalued and has less risk than stock Y.

Stock X is undervalued as compared to Stock Y.

Stock Y is undervalued as compared to Stock X.