pls show all workings without excel

Consider the following table of returns for 2 assets and the market portfolio:

state rM. r1 r2

recession : 05 .02 .06

boom : 25 .38 .12

where r1 and r2 are the rates of return on assets 1 and 2 and rM is the rate of return on the market

portfolio. Assume that the probability of each state is 0.5 so that the expected rates of return for stock

1 and stock 2:

Er1 = .5 (.02) + .5 (.38) = .18

Er2 = .5 (.06) + .5 (.12) = .09

Recalling that:_i =Cov (r_i, r_M) /²_M find ₁ and ₂

(b) Assume that rf = :06: Find the equation of the the securities market line for each stock. Draw

the SML for each stock with on the horizontal axis. Identify each stock.

(c) Suppose that analysts have forecasted E(r₁^analysts) = .18 and E (r₂^analysts) = .09 find ₁ and ₂. Determine if any of these two assets is underpriced or overpriced.

B B B