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Draw the security market line

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Question - Security Market Line - Assume that the risk-free rate, RF, is currently 4% and that the market return, rm, is currently 10%.

a. Draw the security market line (SML) on a set of "nondiversifiable risk (x-axis)-required return (y-axis)" axes.

b. Calculate and label the market risk premium on the axes in part a.

c. Given the previous data, calculate the required return on asset A having a beta of .8 and asset B having a beta of 1.2.

d. Draw the betas and required returns from part c for assets A and B on the axes in part a. Label the risk premiums associated with each of these assets and discuss them.

Reference no: EM133032754

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