Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Stock Y has a beta of 1.40 and an expected return of 19%. Stock Z has a beta of 0.65 and an expected return of 10.5%. The market risk premium is 8.8%. The risk-free rate is 6%, are these stocks correctly priced? Show your argument for each stock.
Hint: first find the expected return using CAPM for each stock.
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