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Problem Three (25 points): Using the properties of the capital market line (CML) and the security market line (SML), determine which of the following scenarios
Problem Three (25 points): Using the properties of the capital market line (CML) and the security market line (SML), determine which of the following scenarios are consistent or inconsistent with the CAPM. Explain your answers. Let A and B denote arbitrary securities while F and M represent the riskless asset and the market portfolio respectively (a) Scenario I Security ERIAB 25% 0.8 15% 1.2 (b) Scenario II Security|ERI (R) A 25 M | 15% 30% 30 (c) Scenario III Security |ERI (R) A. 25% 55% 5%0% M | 15% 30% (d) Scenario IV. Secity ER] B 20% 1.5 15% 1.0 e) Scenario Seity ER A | 35% 2.0 M | 15% 1.0
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