UESTION 34

Currently the risk-free rate is 6% and the expected return on the market portfolio is 11%, the expected return for 3 stocks as priced in the market are listed below with their estimate of beta.

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Stock ... Expected Return ..... Beta

X .................... 14% .............. 1.5

Y .................... 12% .............. 2.0

Z .................... 10% .............. 0.8

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Which of these stocks is underpriced?