Suppose that stocks A, B, and all have a beta of 1 on the market. The graph below plots the Market Capitalization for a variety of stocks and their beta on a financial intermediary risk factor. Since small-cap stocks are most similar to the other non-diversifiable assets on banks' balance sheets (i.e., small business loans), we find a negative relationship between firm size and a stock's beta on the financial intermediary risk factor. Size and Beta Distributio 600 500 *O Market Cap (Billions S) 300 200 100 0 0.0 05 25 3.0 05 10 15 2.0 Beta Financial intermediary If the CAPM holds, which stock SHOULD have the highest expected return? OB All 3 stocks should have the same expected return