You are working for Company A, which is a hedge fund and is known for their quantitative strategies for selecting stocks and other securities. Your boss asked you to look at potential investment opportunities. There were three stocks, Microsoft, GE, and Amazon, whose characteristics are summarized in the following table, with some cells intentionally left blank. Moreover, the risk-free asset has a return of 3% per year in the United States. All assumptions underlying the Capital Asset Pricing Model (CAPM) hold.

Stock Characteristics Expected Return 13 Microsoft 1 .50 GE 6% Amazon 1 5% 2 .00 a. (4 points) Plot Microsoft, GE and Amazon using the information in the above 5" table together with the Security Market Line. (You should indicate the intercept and slope of the Security Market Line, and indicate the positions of Microsoft, GE and Amazon in the Security Market Line). (2 points) What is the expected market return? (5 points) Assume your boss, Lasse Pederson, gave you $1 million to investment. You decided to buy 38 0.2 million worth of Microsoft stocks, $0.2 million worth of GE stocks, and $ 0.5 million worth of Amazon stocks, and invest the rest of the money at the risk free rate. Calculate the expected return and beta of your portfolio. (4 points) Your investment advisor, Mr. Peter Lynch, came to your office and was excited to recommend one stock, Retail Inc., to you. His argument was that he believed the stock Retail Inc. would have an expected return of 8.5% per year, but with total volatility (standard deviation of stock returns) about 10% per year. Meanwhile, Mr. Peter Lynch mentioned that the beta of Retail Inc. is 1.2. Are you going to buy the stock of Retail Inc? If not, at what rate of return would you be willing to purchase this stock