Axis of the figure and intercept for market security line

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Reference no: EM13814594

The risk-free interest rate 2% and the mean return on the market portfolio of risky assets is 8%. You are analyzing three individual stocks. The first has a mean return of 5.5% and a beta of 0.5. The second has a mean return of 6.5% and a beta of 0.75. The third has a mean return of 10% and a beta of 1.5.

A. Calculate the expected return for each stock. Which of the three stocks, if any, obeys the prediction of CAPM?

B. Draw the security market line and plot the position of each individual stock in relation to it. Make sure to label each axis of the figure and the intercept for the market security line.

Reference no: EM13814594

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