> Question 09 According to CAPM, which of the following statements regarding the given security market line (SML) is true? 20 A B Stock A is underpriced by 2% Stock D is overpriced by 3% Stock Band Stock C have the same alpha and beta Stock B and the market have the same expected return 18 D 18 D 15 Expected Return 10 B Hint: Assignment 2 Question 7 A Alpha Example Suppose you estimate the following: B = 1.3 = 15% E[P] - 11% ON - 29 0 0.25 0.5 0.75 1 1.25 1.5 1.75 2 Beta The expected return according to the CAPM is: E[n] = r + BE[N] - ) = 0.02 + 1.3(0.09) = 0.137 Its abnormal return is: an-En = 0.15-0.137 = 0.013 = 1.3% Plot Area