Question: You are considering two stocks: A and B. Based on your analysis, you believe that stock A will earn a return of 10% and stock

You are considering two stocks: "A" and "B". Based on your analysis, you believe that stock "A" will earn a return of 10% and stock "B" will earn a return of 8% next year. The beta of stock A is 1.2, while the beta of B is 0.8. The risk-free rate is 2 percent and the market risk premium is equal to 7 percent. Assuming that both stocks have been priced using CAPM, Which of the following choices is correct? O a. Stock A is undervalued, while stock B is overvalued. O b. Stock A is overvalued, while stock B is undervalued. O c. Both stocks are overvalued. O d. Both stocks are undervalued. O e. Stock A is undervalued, while stock B is fairvalued

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