Question: Please use your own word to explain this question. Suppose that the risk-ee rate of return is 5%. and the expected rate of return on

Please use your own word to explain this question.

Suppose that the risk-ee rate of return is 5%. and the expected rate of return on the market portfolio (with a beta of 1) is 14%. In addition, investors forecast a rate of return of 15% for Stock X, and of 17% for Stock Y. The two stocks have a standard deviation and beta as indicated in the Table below. StandaId Deviation !_ a. Calculate the fair expected rate of return and the alpha for each stock. [10 marks] b. Are the stocks under-priced or over-priced? Explain your answer. [10 marks] c. Suppose you are considering buying a share of stock Z at $39. The stock is expected to pay $2 dividends next year and you expect to sell it then for $40. The stock Z has a Beta = 0.4. By comparing the \"actually" expected rate of return on Z with its 'fair\" expected rate of return, explain if this stock is overpriced or under-priced. [10 marks]

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