30 The following information describes the expected return and risk relationship for the stocks of two of WAH 's competitors Using only the data shown above a Draw and label a graph showing the security market line and position stocks X and Y relative to it b Compute the alphas both for stock Xand ...

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30. The following information describes the expected return and risk relationship for the stocks of two of

Question:

30. The following information describes the expected return and risk relationship for the stocks of two of WAH's competitors.

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Using only the data shown above:

a. Draw and label a graph showing the security market line and position stocks X and Y relative to it.

b. Compute the alphas both for stock Xand for stock Y. Show your work. (Hint:
Alpha is the difference between the stock's expected return and the equilibrium expected return given by the SML.)

c. Assume that the riskfree rate increases to 7% with the other data remaining unchanged. Select the stock providing the higher expected risk-adjusted return and justify your selection. Show your calculations.