Stock Y has a beta of $1\mathrm{.}5$ and an expected return of $15\mathrm{.}7\%.$ Stock Z has a beta of $0\mathrm{.}6$ and an expected return of $8\mathrm{.}2\%.$ Currently, the risk$-$free risk is $5\mathrm{.}3\%$ and the market risk premium is $6\mathrm{.}3\%.$

$1)$ What are the reward$-$to$-$risk ratios for Stocks Y and Z$,$ respectively? Are Stock Y and Stock Z fairly priced, over$-$valued, or under$-$valued?

$2)$ Please draw the Security Market Line $($SML$)$ and specify the axes. Please also identify the risk$-$free asset and the market portfolio on the SML$.$

$3)$ On the same graph you draw in $2),$ please draw the new SML in the following scenarios, respectively.

i$)$ The inflation rate increases by $2\%$ and everything else stays the same.

ii$)$ The market risk premium increases by $1\%$ and everything else stays the same.Stock $Y$ has a beta of $1\mathrm{.}5$ and an expected return of $15\mathrm{.}7\%.$ Stock $Z$ has a beta

of $0\mathrm{.}6$ and an expected return of $8\mathrm{.}2\%.$ Currently, the risk$-$free risk is $5\mathrm{.}3\%$ and

the market risk premium is $6\mathrm{.}3\%.$

What are the reward$-$to$-$risk ratios for Stocks $Y$ and $Z,$ respectively? Are

Stock $Y$ and Stock $Z$ fairly priced, over$-$valued, or under$-$valued?

Please draw the Security Market Line $($SML$)$ and specify the axes. Please also

identify the risk$-$free asset and the market portfolio on the SML$.$

On the same graph you draw in $2),$ please draw the new SML in the following

scenarios, respectively.

i$)$ The inflation rate increases by $2\%$ and everything else stays the same.

ii$)$ The market risk premium increases by $1\%$ and everything else stays the

same.