The equity analyst team of the North Rock Asset Management Group has gathered the following information for stock Grainy and stock Vege:

Stock Grainy Stock Vege

Expected Return % 12 15 Standard Deviation % 32 21 Beta 0.6 1.3

Assume that the expected rate of return on the market is 12% and the risk-free rate is 5%.

a. What would be the fair return for each stock, Grainy and Vege, according to the capital asset pricing model (CAPM)?

4 marks

b. Plot the two stocks: Grainy and Vege on the SML graph. What are the alphas of each? Which security would be considered the better buy? Briefly explain your answers. 6 marks

Need full steps please!