a) Assume that Apple stock has a Beta of 0.9. The risk-free rate is 4% and market rate of return is 14%. The expected rate of return on Apple stock is 13%. Determine whether the stock is overpriced, under-priced or correctly priced and illustrate where would underpriced and overpriced securities plot on the SML (security market line)?

b) Using an appropriate diagram, illustrate and describe how an investor would use an optimal portfolio of risky and risk-free asset. (10 Marks)