Attempts Keep the Highest/l 16. Ch. 8 The Capital Asset Pricing Model and the security market line Gilberto holds a portfolio that invests equally in three stocks, such that w w-we - 1/3. Each stock is described in the following table: Stock Beta 0.5 Expected Return 7.5% Standard Deviation 23% 38% 45% B 12.0% 1.0 2.0 14.0% An analyst has used market and form-specific information to make expected return estimates for each stock. The analyst's expected return estimates may or may not equal the stocks' required returns story The risk-free rate is 4%, and the market risk premium (RP) is. Use the following graph of the security market ine (SL) to plot each stock's beta and expected return on the graph. Tooltip Mouse over the points on the graph to see their coordinates CA The nsk-free rate (FrP) is 4%, and the market nisk premium (HP) is 5%. Use the following graph of the security market line (SML) to plot each stock's beta and expected return on the graph. Tooltip: Mouse over the points on the graph to see their coordinates 14 O Stock A 12 A 10 Stock RATE OF RETURN (Percent) . Stock ctory O 0 02 200 LO RISK (Beta) Astock is in equilibrium itits expected return its required return. In general, assume that markets and stocs are in equilibrium for fairly valued), but sometimes investors have different opinions about a stock's prospects and may think that a stock is out of brum (ether undervuedot overed). Based on the analyst's expected retam estimates Stock As Stocks Stool nudom and fairly valued and