You have observed the following returns over time: Year Stock X Stock Y Market 2006 13% 14% 14% 2007 18 5 9 2008 -13 -7 -12 2009 4 3 2 2010 21 12 17 Assume that the risk-free rate is 3% and the market risk premium is 14% What is the beta of Stock X? Round your answer to two decimal places. I. Stock Y is undervalued, because its expected return is below its required rate of return. II. Stock X is overvalued, because its expected return exceeds its required rate of return. III. Stock X is undervalued, because its expected return its exceeds required rate of return. IV. Stock Y is undervalued, because its expected return exceeds its required rate of return. V. Stock X is undervalued, because its expected return is below its required rate of return.
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