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Condition Probability Grn Bond Stock A Stock B Market Recession 0.1 8.0% -22% 28% -13% Below average 0.2 8.0% -2% 14.7% 1% Average 0.4 8.0%

Condition

Probability

Grn Bond

Stock A

Stock B

Market

Recession

0.1

8.0%

-22%

28%

-13%

Below average

0.2

8.0%

-2%

14.7%

1%

Average

0.4

8.0%

20%

0%

15%

Above average

0.2

8.0%

35%

-10%

29%

Boom

0.1

8.0%

50%

-20%

43%

Expected Return

8%

17.4%

1.74%

?

Standard Deviation

0%

?

13.36%

15.34%

Beta

0

1.29

?

1

Required:

Construct the SML of the above four alternative. Clearly indicate stock A and stock B have been under/over or fairly priced. [TOTAL:

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