Consider the following information about three stocks:

The treasury bill rate $($riskless bond$)$ is $3\%$ and the expected return on the market $($RM$)$ is $7\%.$

a$.$ Using the CAPM, calculate the required return for each of these above stocks. $(7$ points$)$

b$.$ Are the above stocks underpriced or overpriced? Explain your answer $(7$ points$)$

c$.$ Suppose you want to combine the riskless bond with one of the above stocks in a two

security portfolio. Which of these stocks would you prefer to combine with the riskless

bond? Explain your answer $($Hint: You may want to graph this$)(6$ points$)$