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Suppose the return on market is 13.00%, market volatility is 40.00% and the risk-free rate is 4.00%. i) Using an illustration diagram of the Capital

Suppose the return on market is 13.00%, market volatility is 40.00% and the risk-free rate is 4.00%.

i) Using an illustration diagram of the Capital Asset Pricing Model (CAPM), formulate the equation of the Security Market Line (SML) based on the above information.

ii) Suppose a security has a beta of 1.20. According to the CAPM, compute its expected return.

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