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The market portfolio ( M ) provides a 1 5 % annual return with a 2 0 % standard deviation. The risk - free rate

The market portfolio (M) provides a 15% annual return with a 20% standard deviation. The risk-free rate of return (rf) is 5% per annum. Security Q and P provide 17% and 11% return per annum and their betas are 1.2 and 0.8 respectively. Based on this information Mr Ali drew the following graph of Security Market Line (SML) to identify any mispricing of security Q and P in the market. Unfortunately, Jenny forgot to label her graph. Help her label the following graph.
i) Among the points A,B,C,D,E and F on the graph - Identify the points that are indicating the locations of security Q and P.
ii) Based on the information above, do you think security Q and P are mispriced in the market? Explain if these securities are overpriced or underpriced? If security Q and P are not mispriced, then explain why not.
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