2. Suppose the CAPM holds, i.e., the CAPM describes the risk-return characteristics of all assets correctly. You analysis of stocks A and B reveals the following information: the standard deviation of the return on A is 28% and its correlation with the market portfolio is 0.6, and the standard deviation of the return on B is 21% and its correlation with the market portfolio is 0.8. Furthermore, the expected return on the market portfolio is 12% and its standard deviation is 14%. The risk-free rate is 5% (a) What are the expected returns on A and B according to the CAPM? (b) Draw the Capital Market Line (CML), denoting the market portfolio as M. Be sure to label the axes, and locate risk-free asset, M, A, and B clearly on the same graph. (c) Draw the Security Market Line (SML), denoting the market portfolio as M. Be sure to label the axes, and locate risk-free asset, M, A, and B clearly on the same graph. (d) If there exists an efficient portfolio C that has the same expected return as stock A (according to CAPM), what is standard deviation of this portfolio C and how should we allocate to construct such portfolio