7. The Capital Asset Pricing Model and the security market line Wilson holds a portfolio that invests equally in three stocks (WA = We = wc = 1/3). Each stock is described in the following table: Stock Beta Standard Deviation Expected Return A 0.5 23% 7.5% B 1.0 38% 12.0% C 2.0 45% 14.0% An analyst has used market- and firm-specific information to generate expected return estimates for each stock. The analyst's expected return estimates may or may not equal the stocks' required returns. You've also determined that the risk-free rate [RF] is 4%, and the market risk premium (RPM) is 5%. Given this information, use the following graph of the security market line (SML) to plot each stock's beta and expected return on the graph. Tool tip: mouse over the points on the graph to see their coordinates. Tool tip: Mouse over the points on the graph to see their coordinates. RATE OF RETURN (Percent) Stock A Stock B Stock C 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 RISK (Beta) Clear All 7. The Capital Asset Pricing Model and the security market line Wilson holds a portfolio that invests equally in three stocks (WA = We = wc = 1/3). Each stock is described in the following table: Stock Beta Standard Deviation Expected Return A 0.5 23% 7.5% B 1.0 38% 12.0% C 2.0 45% 14.0% An analyst has used market- and firm-specific information to generate expected return estimates for each stock. The analyst's expected return estimates may or may not equal the stocks' required returns. You've also determined that the risk-free rate [RF] is 4%, and the market risk premium (RPM) is 5%. Given this information, use the following graph of the security market line (SML) to plot each stock's beta and expected return on the graph. Tool tip: mouse over the points on the graph to see their coordinates. Tool tip: Mouse over the points on the graph to see their coordinates. RATE OF RETURN (Percent) Stock A Stock B Stock C 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 RISK (Beta) Clear All