If the risk-free rate is 5 percent and the market risk


Stock Y has a beta of 1.5 and an expected return of 15 percent. Stock Z has a beta of .75 and an expected return of 10.5 percent. If the risk-free rate is 5 percent and the market risk premium is 7 percent, are these stocks “correctly priced” (according to the CAPM)?

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Financial Management: If the risk-free rate is 5 percent and the market risk
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