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.