Question 1 (20 marks) The security market line (SML.) shows the different levels of systematic or market risk of various marketable securities plotted against the expected return of the entire market at a given point in time. Also known as the characteristic line, the SML is a visual representation of the capital asset pricing model (CAPM), where the x-axis of the chart represents risk in terms of beta, and the y-axis of the chart represents expected return (source: https://www.investopedia.com/terms/s/sml.asp). You have drafted the security market line (SML) which is presented in the Figure below: E() SML 12.0% 4.0% B Assume you are doing research about Stock B for your client. You estimate that Stock B with a beta (B) of 1.25 is offering an expected retum of 15.0%. Required 1. Predict the expected return on Stock B, according to CAPM. [4 marks] 2. Explain to your client whether this stock is worthwhile to buy or not. Is it over or under priced? [3 marks] 3. Explain what Stock B's alpha is to your client. What does this alpha indicate about Stock B? [5 marks] 4. ssume that your client mentions they have also heard about the Capital Market Line (CML) and are very confused about it. Discuss with your client the CML's similarities to and differences from the SML (Security Market Line) [8 marks]