Suppose that you use the three average returns per annum calculated in Part (a) as the estimates of the expected returns for the two stocks and market portfolio, respectively. Suppose that the risk-free rate is 0.8% per annum.

a) Plot a risk-return graph with beta on the x-axis and returns on the y-axis, which shows the Security Market Line, the market portfolio, and the actual returns of the two stocks. (4 marks)

b) Determine the fair expected returns for the two stocks according to CAPM (4 marks)

Name	SCL price	SAN price	NZX50 index	90 DAY BANK BILL (RFR) - % p.a.
Jan-15	1.43	4.80	5568.28	3.67
Feb-15	1.52	4.95	5756.68	3.64
Mar-15	1.55	4.95	5892.67	3.63
Apr-15	1.57	4.85	5835.58	3.64
May-15	1.63	4.86	5797.40	3.62
Jun-15	1.73	5.10	5844.95	3.47
Jul-15	1.70	5.20	5794.35	3.24
Aug-15	2.00	5.07	5957.85	3.06
Sep-15	2.00	5.01	5654.99	2.89
Oct-15	2.02	4.90	5585.43	2.83
Nov-15	2.11	4.95	5983.84	2.95
Dec-15	2.23	5.70	6150.68	2.85
Jan-16	2.46	5.60	6324.26	2.75
Feb-16	2.28	5.70	6174.49	2.69
Mar-16	2.35	6.40	6280.90	2.56
Apr-16	3.08	6.20	6708.02	2.33
May-16	3.35	6.00	6791.82	2.38
Jun-16	3.31	5.80	7022.40	2.42
Jul-16	2.98	5.56	6926.23	2.42
Aug-16	3.27	5.62	7356.63	2.26
Sep-16	3.21	5.85	7423.19	2.23
Oct-16	3.20	6.38	7372.49	2.20
Nov-16	3.10	6.26	6930.49	2.13
Dec-16	3.47	6.75	6932.74	2.04
Jan-17	3.45	6.78	6881.22	2.00
Feb-17	3.41	7.00	7055.50	2.02
Mar-17	3.45	7.50	7148.78	2.00
Apr-17	3.43	7.32	7225.01	2.00
May-17	3.35	7.27	7382.22	1.98
Jun-17	3.33	7.15	7450.90	1.95
Jul-17	3.34	6.95	7588.43	1.99
Aug-17	3.40	7.25	7729.44	1.96
Sep-17	3.39	7.36	7821.98	1.96
Oct-17	3.70	7.90	7928.89	1.94
Nov-17	3.78	7.90	8053.81	1.95
Dec-17	3.87	8.07	8188.83	1.91
Jan-18	4.78	8.30	8398.08	1.88
Feb-18	4.78	7.96	8383.87	1.89
Mar-18	4.49	7.70	8342.71	1.92
Apr-18	4.51	7.43	8319.07	1.97
May-18	4.51	7.60	8435.97	2.03
Jun-18	4.66	7.70	8636.16	2.01
Jul-18	4.63	7.70	8942.47	1.98
Aug-18	4.61	7.62	8859.92	1.91
Sep-18	4.81	7.70	9257.29	1.90
Oct-18	4.90	7.95	9327.27	1.90
Nov-18	4.63	7.39	8843.83	1.94
Dec-18	4.47	6.70	8876.09	1.97
Jan-19	4.50	6.60	8811.27	1.97
Feb-19	4.40	6.68	8999.17	1.93
Mar-19	4.74	6.60	9351.68	1.89
Apr-19	4.98	6.97	9853.91	1.84
May-19	4.98	6.83	9966.42	1.79
Jun-19	4.75	6.75	10117.99	1.64
Jul-19	4.67	6.81	10464.53	1.62
Aug-19	4.55	6.71	10860.82	1.46
Sep-19	4.77	6.75	10800.00	1.18
Oct-19	5.00	6.80	10996.99	1.09
Nov-19	5.21	7.05	10761.69	1.12
Dec-19	5.19	7.80	11301.98	1.22
Jan-20	5.01	7.95	11491.90	1.29
Feb-20	4.63	7.56	11550.16	1.25
Mar-20	4.10	6.90	11103.43	0.90
Apr-20	4.43	6.59	9926.08	0.49
May-20	4.88	7.00	10449.01	0.26
Jun-20	4.92	6.85	10882.41	0.26
Jul-20	4.97	6.35	11350.27	0.30
Aug-20	4.93	6.49	11666.09	0.30