You derive the information for the companies listed in the table on the basis of five years of monthly data:

CompanystandardD iP im

Solarsound12.1% 0.72

Chaser14.6% 0.33

Brightsun7.6% 0.55

Purolac10.2% 0.60

Market Index5.5% 1.00

Required: (a) Compute the beta coefficient for each stock.

(b) Assuming a risk-free rate of 6 percent and an expected return for the market portfolio of 12 percent, compute the expected (required) return for each stock and plot them on the Security Market Line (SML).

(c) Plot the following estimates of an analyst's forecast returns during the next year on the SML and indicate which of these stocks are undervalued or overvalued. Solarsound 20% Chaser 13% Brightsun 16% Purolac 12%