Y has a beta of 1.50 and an expected return of 17 per cent. Z has a

Question:

Y has a beta of 1.50 and an expected return of 17 per cent. Z has a beta of 0.80 and an expected return of 10.5 per cent. If the risk-free rate is 5.5 per cent and the market risk premium is 7.5 per cent, are these equities correctly priced? What would the risk-free rate have to be for the two equities to be correctly priced?

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