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FIN.256.M016.FALL25.Principles of Finance Final Prep LockDown Browser FIN.256.M016.FALL25.Principles of Finance Final Prep LockDown Browser

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Stock Y has a beta of 1.8 and an expected return of 18.2 percent. Stock Z has a beta of 0.8 and an expected return of 9.6 percent. If the risk-free rate is 5.2 percent and the market risk premium is 6.7 percent, the reward-to-risk ratios for Stocks Y and Z are [input]% and [input]%, respectively. Since the SML reward-to-risk is [input]%, Stock Y is [input] (undervalued or overvalued) and Stock Z is [input] (undervalued or overvalued).Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.Blank.xlsx

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The question asks us to compute the reward-to-risk ratios for Stocks Y and Z using the given data, identify the SML reward-to-risk, and then classify each stock as undervalued or overvalued. First, determine the reward-to-risk ratio for Stock Y. The formula is: (Expected Return − Risk-free Rate) / Beta. - For Y: E(R_Y) = 18.2%, ......Login to view full explanation

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