Consider the following three stocks:

Olympic Medal	Probability	Stock A	Stock B	Stock C
Gold	0.1	25%	70%	8%
Silver	0.3	20%	30%	18%
Bronze	0.6	5%	-15%	30%
Current Share Price		4	1.50	2.00
Expected Return		?	7%	24.2%
Standard Deviation		8.08%	29.09%	?

1. What is the expected return for Stock A?

2. What is the standard deviation for Stock C?

3. Which of the three stocks is a rational investor most likely to purchase?

d) What is the expected return and standard deviation of a portfolio of 30 shares of Stock A, 30 shares of Stock B and 20 shares of Stock C?

e) Using graph explain Security Market Line (SML) and discuss that how based on SML

investor can decide whether the certain stock is under-priced or overpriced.

f) Explain the problems that can undermine the accuracy of Capital Asset Pricing Model

(CAPM).