B.) Draw the SML for this economy; plot the two securities on the SML graph along with the alphas of each.

Please show & explain all work and formulas. Thanks!

(25 points) Through your own security analysis, you compute expected returns, standard deviations and Betas for the following two stocks. The T-bill rate is currently 2% and the expected return on the S\&P 500 Index is 8%, with a standard deviation of 15%. Divercifie ce systed a. If you currently hold the market portfolio (i.e. well diversified), which single stock would you chose to add to your portfolio? Show evidence and explain. (25 points) Through your own security analysis, you compute expected returns, standard deviations and Betas for the following two stocks. The T-bill rate is currently 2% and the expected return on the S\&P 500 Index is 8%, with a standard deviation of 15%. Divercifie ce systed a. If you currently hold the market portfolio (i.e. well diversified), which single stock would you chose to add to your portfolio? Show evidence and explain