Stock Beta Standard Deviation Expected Return A 0.5 23% 7.5% 1.0 38% 12.0% C 2.0 45% 14.0% An analyst has used market- and firm-specific information to generate expected return estimates for each stock. The analyst's expected return estimates may or may not equal the stocks' required returns. You've also determined that the risk-free rate [RF] is 4%, and the market risk premiun RPM] is 5%. Given this information, use the following graph of the security market line (SML) to plot each stock's beta and expected return on the graph. (Note: Click on the points on the graph to see their coordinates.) Stock A 16 A cent B & F 10 dtv An analyst has used market- and firm-specific information to generate expected return estimates for each estimates may or may not equal the stocks' required returns. You've also determined that the risk-free rate [RF] is 4%, and the market risk p RPM) is 5%. Given this information, use the following graph of the security market line (SML) to plot each stock's beta and expected return on the graph. (m Click on the points on the graph to see their coordinates.) 20 Stock A A RATE OF RETURN (Percent) 18 16 14 12 10 2 62 04 06 OF 1.0 12 14 16 18 20 RISK (Beta) 16 00 A Stock B .. Stock C (a dtv N RATE OF RE Stock C 2 04 0 02 04 06 08 1.0 12 14 1.6 18 20 RISK (Beta) A stock is in equilibrium if its required return equals its expected return. In general, assume that markets and stocks are in equilibrium (or fairly valued), but sometimes investors have different opinions about a stock's prospects and may think that a stock is out of equilibrium (either undervalued or overvalued). Use the analyst's expected return estimates to determine if this analyst thinks that each stock in Wilson's portfolio is undervalued, overvalued, or fairly valued. Undervalued Fairly Valued Overvalued Stock A Stock B Stock C Grade It Now Save & Continue Continue without saving A 16 stv