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Stock X has a beta of 1.55 and is expected to generate the following returns given...

Stock X has a beta of 1.55 and is expected to generate the following returns given the three different economic states, boom, normal and recession.

State Probability Expected return
Boom 50% 45%
Good 30% 25%
Poor 20% -20%

The market risk premium is 12% and the risk-free rate is 7%.  

Based on the above information, the stock is (underpriced, overpriced, correctly priced) , therefore we should (buy, sell, hold)  the stock. This stock plots (on, above, below)  SML.

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