Company A is considering the following investments. The current rate on Treasury bills is 2.5 percent, and the expected return for the market portfolio is 9 percent.

a. Using the CAPM, what rate of return should Company A require for each individual security? Plot security market line (SML) using Excel and paste the figure here. Plot is mandatory

b. How does your evaluation of the expected rates of return for Company A change if the risk-free rate rises to 4.5 percent and the market risk premium is only 5 percent? Plot the new security market line (SML) using Excel and paste the figure here Plot is Mandatory. You might draw the two SMLs (old and new) in the same figure.

c. Which market risk premium scenario (from part a or b) better fits a recessionary environment? A period of economic expansion? Explain your response.

Please SML Plots are mandatory.

MUA Stock K G B U Beta 1.12 1.3 0.75 1.02