STATE OF THE ECONOMY PROBABILITY T- BILLS PHILLIPS PAY- UP RUBBER MADE MARKET INDEX Recession 0.2 7 -22 28 10 -13 Below Average 0.1 7 -2 14.7 -10 1 Average 0.3 7 20 0 7 15 Above Average 0.3 7 35 -10 45 29 Boom 0.1 7 50 -20 30 43 Mean 7 16.9 2.07 19.6 15 Standard Deviation 0 23.43 15.62 18.92 25.91 Coefficient of Variation 0 1.386391 7.545894 0.965306 1.727333 Covariance with MP 0 413 -275 231 313.6 Correlation with Market Index 0 0.680315 0.67949 0.47122 1 Beta 0 0.615198 -0.40964 0.344094 1 CAPM Req. Return 7 11.92 3.72 9.75 15 Valuation Fairly valued Under Valued Over valued Under valued Fairly valued Nature of Stock Defensive Defensive Defensive Defensive Defensive Using the data generated in the previous question (Question 1); RELEASED BY THE CC, MGMT2023, SEMESTER 1, 2022 3 a) Plot the Security Market Line (SML) (2 marks) b) Superimpose the CAPMs required return on the SML (2 marks) c) Indicate which investments will plot on, above and below the SML? (2 marks) d) If an investments expected return (mean return) does not plot on the SML, what does it show? Identify undervalued/overvalued investments from the graph (2