The reward-to-risk ratio for stock A is less than the reward-to-risk ratio of st

Question

The reward-to-risk ratio for stock A is less than the reward-to-risk ratio of stock B. Stock A has a beta of 0.82 and stock B has a beta of 1.29. This information implies that: Either stock A is underpriced or stock B is overpriced or both. Stock A is less risky than stock B and both stocks are fairly priced. Both stock A and stock B are correctly priced since stock A is riskier than stock B. Either stock A is overpriced or stock B is underpriced or both. Stock A is riskier than stock B and both stocks are fairly priced.

Explanation / Answer

the correct choice is either stock A is overpriced or stock B is underpriced or both

since stock A has less beta than stock B but ratio of A is less so, the stock A is overpriced

similary for stock B

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