Q$5.$ Consider the investment opportunity described below:

a$)$ Plot these on security Market Line given risk free rate $rf=5\%$ and market return $rm=14\%.$

b$)$ Which of these investments is overpriced, underpriced or correctly priced? Which has a

positive Net Present Value when their cash flows are discounted at the CAPM required rate of

return? Explain your reasoning.

c$)$ If the inflation goes up by $1\mathrm{.}5\%$ and market risk premium remains the same, which

security is overpriced$/$underpriced$/$correctly priced. Explain.

$(20$ points$)$