Stock Y has a beta of 1.20 and an expected return of 11.4 percent. Stock Z...

Question

Question

Stock Y has a beta of 1.20 and an expected return of 11.4 percent. Stock Z has a beta of .80 and an expected return of 8 perc

Answer 1

Answer #1

Required Rate of Stock Y = 0.025 + 1.20(0.07) = 10.90%

So, Stock Y is under-priced

Required Rate of Stock Z = 0.025 + 0.80(0.07) =8.10%

So, Stock Z is over-priced.

Answer 2

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