1. Assume we have the risk-return information of three assets as follows:

Portfolio	Expected Return	Beta
Risk-free securities	0.05	0
Market Portfolio	0.10	1.0
Security A	0.09	1.5

1. Using the information above, please compute the expected return of security A if CAPM holds.

2. Please draw the SML line. (Note: please label the x- and y-axes clearly).

3. Please compute the slope of the SML line in part (2).

4. Please mark the actual position of Security A on the graph in part (2). Please mark the position of Alpha as well.

5. Is Security A underpriced or overpriced? Why?