You have a portfolio made up of the following holdings: 3,000 shares of Ding Ltd, 2,500 shares of Slam and 5,000 shares of Nacho Ltd. The Betas for the stocks are 1.3, .9 and 1.1, respectively. As well the Market Risk premium is 9.0% and government bonds yield 2.0%: Calculate the expected annual return on your portfolio. The dividend growth rates are 5%, 4% and 3%, respectively (Ding, Slam and Nacho). Current dividends for the companies are $0.32, $0.41 and $0.53, respectively. The share prices for the stocks are as follows: Ding $5.00, Slam $9.00 and Nacho $11.00 per common share.

a) Calculate the expected annual return on your portfolio. (6 Marks)

b) Calculate whether each stock's actual expected return is: (1) above, (2) below or (3) on the Security Market Line (SML