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You are using a SML approach to stock selection. You want to set up a long and short position. The equity market risk premium is
You are using a SML approach to stock selection. You want to set up a long and short position. The equity market risk premium is 6% and the risk free rate is 2%. Based on the data below, which stock would give you a long position and which stock would give you a short position?
| Analyst Expected Return | Beta |
Stock A | 8.6% | 1.1 |
Stock B | 9.5% | 1.2 |
Stock C | 8.0% | 1.0 |
Stock D | 7.2% | 0.9 |
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