Problem 7-02 a. You expect an RFR of 7 percent and the market return (R) of 13 percent. Compute the expected return for the following stocks. Round your answers to two decimal places. E(R) Stock U N D Beta 0.95 1.10 -0.30 % % Choose the correct SML graph. The correct graph is -Select- II A. Security market Line E(RI) 0.18 0.16 -0.14 SML U 0.12 Rm 0.1 0.08 0.06 D 0.04 0.02 -0.6 -0.4 -0.2 0.2 0.4 0.6 0.8 1.2 1.4 Beta B. Security market Line E(RI) 0.18 SML 0.16 Rm 0.14 0.12 N 0.1 0.02 0.06 D 0.04 0.02 -0.6 -0.4 -0.2 0.2 0.4 0.6 0.8 1.2 1.4 Beta C. Security market Line E(RI) 0.18 0.16 SML 0.14 Rm N 0.12 0.1 0.08 0.06 D 0.04 0.02 -0.6 -0.4 -0.2 0.2 0.4 0.6 0.8 -- 1.2 1.4 Beta D. Security market Line E(RI) 0.18 0.16 SML 0.14 N Rm 0.12 0.1 0.08 D 0.06 0.04 0.02 -0.6 -0.4 -0.2 0.2 0.4 0.6 0.8 1.2 1.4 Beta b. You ask a stockbroker what the firm's research department expects for these three stocks. The broker responds with the information below. Indicate what actions you would take with regard to these stocks. Round your answers to two decimal places. Stock Current Price Expected Price Expected Dividend Estimated Return Evaluation U 28 31 1.15 % -Select N 49 51 1.85 % Select D 38 41 1.50 % -Select and sell Select If you believe the appropriateness of these estimated returns, you would buy Select Choose the correct SML graph. Note that labels with asterisk denote estimated returns. The correct graph is -Select A. Security market Line E(RI) 0.18 0.16 0.14 SML U N D Rm 0.121 0.1 0.08 0.06 D 0.04 0.02 -0.6 -0.4 -0.2 0.2 0.4 0.6 0.8 1.2 1.4 Beta B. Security market Line E(RI) T 0.18 0.16 SML *D 0.14 "UN Rm 0.12 0.1 0.00 N D 0.06 0.04 0.02 -0.6 -0.4 -0.2 0.2 0 0.4 0.6 0.8 1.2 1.4 Beta C. C, Security market Line E(RI) 0.18 0.16 SML 0.14 Rm N 0.121 *D 0.1 0.08 N 0.06 0.04 0.02 0.6 1.2 0.4 0.8 1.4 0.2 Beta -0.2 -0.6 -0.4 D. Security market Line E(RI) 0.18 SML 0.16 Rm 0.14 0.121 D N. 0.1 0.00 0.06 *N D 0.04 0.02 I -0.6 -0.4 -0.2 0.2 0.4 0.6 1.4 0.8 1.2 Beta