Q2: An analyst expects Rf =5.5%, a market return=15.5% and the returns for stock A and B are given below. Stocks Beta Analysts estimated return A Stock A is 200 percent more volatile than the market as a whole 20% B Stock B is 70 percent as risky as the market as a whole 14% i) Show on a graph where Stock A and B would be plotted on SML if they were fairly valued using CAPM. (3 marks) ii) Plot (on the same graph) returns estimated by analyst. iii) State whether stock A and B are undervalued/ overvalued?

Q2: An analyst expects Rf=5.5%, a market return=15.5% and the returns for stock A and B are given below. Stocks Beta Analyst's estimated return A Stock A is 200 percent more volatile than 20% the market as a whole Stock B is 70 percent as risky as the 14% market as a whole B 1) Show on a graph where Stock A and B would be plotted on SML if they were fairly valued using CAPM. (3 marks) ii) Plot (on the same graph) returns estimated by analyst. iii) State whether stock A and B are undervalued overvalued