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?

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