Assume the CAPM holds and the following two stocks are in equilibrium.

Stock	Return	Beta
J	12%	1.2
Z	18%	2.0

a) derive the Securities Market Line (SML) equation.

b) Assume portfolio K, a mutual fund, with beta of 1.6 has rate of return of 13%. If the CAPM is the benchmark model, evaluate portfolio Ks performance.

c) if portfolio K is traded like any stock in the market, design any arbitrage opportunity and show what rate of return can be earned with zero beta and zero investment.