The expected returns and betas of two stocks A& B are shown in the table below. The expected market return as represented by the S&P 500 is 10% and the risk free rate is 5%.
Stock A 11% Expected Return 1.2 beta
Stock B 14% Expected return 1.5 beta
True or Flase for each
The fair value return of stock A is 13%
Stock B can be bought at a bargain
Stock A is over-priced
Stock A is better because it’s less risky
The fair-value return of stock b is 12.5%