Stock Y has a beta of 1.2 and an expected return of 11.5 percent. Stock Z has a beta of .80 and an expected return of 8.5 percent. If the risk-free rate is 3.2 percent and the market risk premium is 6.8 percent, the reward-to-risk ratios for Stocks Y and Z are and 0.07 percent, respectively. Since the SML reward-to-risk is Stock Y is undervalued ✓and Stock Z is overvalued 8.64 percent, (Do not round intermediate calculations and enter your ✔answers as a percent rounded to 2 decimal places, e.g., 32.16.) 0.07 X
Stock Y has a beta of 1.2 and an expected return of 11.5 percent. Stock Z has a beta of .80 and an expected return of 8.5 percent. If the risk-free rate is 3.2 percent and the market risk premium is 6.8 percent, the reward-to-risk ratios for Stocks Y and Z are and 0.07 percent, respectively. Since the SML reward-to-risk is Stock Y is undervalued ✓and Stock Z is overvalued 8.64 percent, (Do not round intermediate calculations and enter your ✔answers as a percent rounded to 2 decimal places, e.g., 32.16.) 0.07 X
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Stock Y has a beta of 1.2 and an expected return of 11.5 percent. Stock Z has a beta of .80 and an expected return of 8.5 percent. If the
risk-free rate is 3.2 percent and the market risk premium is 6.8 percent, the reward-to-risk ratios for Stocks Y and Z are
and
0.07
percent, respectively. Since the SML reward-to-risk is
Stock Y is
undervalued
and Stock Z is
overvalued
8.64
percent,
(Do not round intermediate calculations and enter your
answers as a percent rounded to 2 decimal places, e.g.,
32.16.)
0.07 X
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