3. The following information is provided for a stock market: Asset 1 3 6.6% 9.8% 12.2%...

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3. The following information is provided for a stock market: Asset 1 3 6.6% 9.8% 12.2% 0.4 1.2 1.8 (a) Assuming that a risk-free asset is available, explain and interpret the Security Market Line (SML) in the context of the CAPM. Construct the SML from the given information and interpret the coefficient values. (b) You are informed that a fourth asset, with = 0.8, is available. Recent observa- tions reveal that its average rate of return 7.0%. What inferences, if any, = would you draw from this information? 3. The following information is provided for a stock market: Asset 1 3 6.6% 9.8% 12.2% 0.4 1.2 1.8 (a) Assuming that a risk-free asset is available, explain and interpret the Security Market Line (SML) in the context of the CAPM. Construct the SML from the given information and interpret the coefficient values. (b) You are informed that a fourth asset, with = 0.8, is available. Recent observa- tions reveal that its average rate of return 7.0%. What inferences, if any, = would you draw from this information?