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Draw the Security Market Line (SML) for the case where the market risk premium is 6 percent, and the risk-free rate is 8 percent. Now
Draw the Security Market Line (SML) for the case where the market risk premium is 6 percent, and the risk-free rate is 8 percent. Now suppose an asset has a beta of 3.0 and an expected return of 20 percent. Plot it on the graph. Is this security properly priced? Discuss the reason of the deviations.
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