Stock X is expected to pay a dividend of $5.40 annually in perpetuity. Stock X has a beta of 0.70, the riskfree rate is 3.5%, and the market risk premium is 7.5%. 6 pts

a. Draw a graph of the SML. Label the axes.

b. Plot the following points on the graph, and include their numeric coordinates: the risk-free asset and stock X.

c. If the current observed price of X is $58.50, what return would we expect given the forecasted perpetual dividend? Plot this on the graph, and identify alpha of stock X on the graph, including its numeric value