26. Two stocks, one high risk (Happy) and one low risk (Lonely), have been evaluated by your company. Your stock analysis team has predicted estimated returns and beta risk in the table below for the two stocks and the market. Using this information, and the CAPM model, draw the risk-return graph, with the security market line, and place the estimate return and the CAPM required rate of return on the graph and indicate to me if Happy and Lonely are over-valued or under-valued and WHY. Provide your answer in the uploaded document.

Est(R) Beta

Market .26 1.00

Happy .33 1.20

Lonely .14 0.75

The risk-free rate is 3%