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You are looking at a stock priced at $5 per share that has a forecast return of 12%, a standard deviation of returns of 10%,

You are looking at a stock priced at $5 per share that has a forecast return of 12%, a standard deviation of returns of 10%, and a beta of 1.2. The T-Bill rate is 4% and the market risk premium is 5%.

A. What is the expected return according to the capital asset pricing model?

B. Is the stock underpriced, overpriced or priced correctly, and why?

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