Question 9 (of 10) 9 value: 10.00 points You did not receive full credit for thi

Question

Question 9 (of 10) 9 value: 10.00 points You did not receive full credit for thi Stock Y has a beta of 1.6 and an expected return of 16 percent. Stock Z has a beta of 0.95 and an expected return of 11.7 percent. Required If the risk-free rate is 4.7 percent and the market risk premium is 7.2 percent, are these stocks correctly priced? Stock Y Stock Z (Click to select) Click to select) References eBook&Resources; Learning Objective: 11-04 Discuss the secur and the risk-return trade-off Worksheet Difficulty: Basic

Explanation / Answer

Required rate=Risk free rate+Beta*Market risk premium

Y:Required rate=4.7+1.6*7.2=16.22%

Z:Required rate=4.7+0.95*7.2=11.54%

Hence since  Required rate is not equal to expected rate ;both Y and Z are not correctly priced.

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