Lets suppose the return on the market is expected to be 15%, and the stock we are analyzing has a beta of 1.3, and the T-bill rate is 2.5%. Further, you think the stock should return 16%.

A) What does the SML predict as an expected return for this stock?

B) What is this stocks alpha?

C) Is the stock over- or underpriced?

PLEASE SHOW ALL WORK