Question 3 (20 marks) Consider the following two investors' portfolios consisting of investments in four stocks: Stock Beta Nelson's Portfolio 1.3 1.0 Jack's Portfolio $2,500 $2,500 $2,500 $2,500 10% oo 0.8 -0.5 $10,000 $5,000 $5,000 $2,500 9% Portfolio Expected Return (a) Calculate the beta on portfolios of Jack and Nelson respectively. (4 marks) (b) (4 marks) Assuming that the risk-free rate is 4% and the expected return on the market is 12%, determine the required return on portfolios of Jack and Nelson respectively. (c) (6 marks) From your answers in part (b), explain whether portfolios of Jack and Nelson are over-priced, under-priced or correctly priced. (6 marks) State and explain whether the following statement is true or false: If a security lies above the security market line (SML), then it must be over-priced. (word limit: 150 words)