Question: Currently the risk-free rate is 6% and the expected return on the market portfolio is 11%, the expected return for 3 stocks are listed below with their estimate of beta.

Stock Expected Return Beta

X 14 1.5

Y 12 2.0

Z 10 0.8

Calculate the expected return required by the market for each of these stocks using the CAPM (Capital Asset Pricing Model).

Which of these stocks is under priced? Which stock is over priced? Which stock is fairly priced?