Problem:
Stock Y has a beta of 1.3 and an expected return of 15 percent. Stock Z has a beta of 0.75 and an expected return of 11.4 percent.
Required:
Question: If the risk-free rate is 5.25 percent and the market risk premium is 7.75 percent, are these stocks correctly priced? Stock Y Stock Z
Note: Provide thorough explanation of the given question.