The risk-free rate is 8% and the expected return on the market is 16%. As an analyst, you are preparing a recommendation report on the following two stocks:

Stock S Stock B

Beta 0.85 1.35

Expected dividend next year $1.10 $4.00

Growth rate (g) 8% 6%

Current Price (p0) $22 $30.77

Following up 0n Question 9, draw the security market line showing the expected and required rates of return.