2. (30 points) Assume we have the risk-return information of three assets as follows: 0.09 Portfolio Expected Return Beta Risk-free securities 0.05 0 Market Portfolio 0.10 1.0 Security A 1.5 (1) (6 points) Using the information above, please compute the expected return of security A if CAPM holds (2) (6 points) Please draw the SML line. (Note: please label the x- and y-axes clearly). (3) (6 points) Please compute the slope of the SML line in part (2). (4) (6 points) Please mark the actual position of Security A on the graph in part (2). Please mark the position of Alpha as well. (5) (6 points) Is Security A underpriced or overpriced? Why? EN