Question: 18. Graph and Draw (Basic) the security market line if the market-risk premium is 5% and the risk-free rate is 7%. a) Suppose that an

18. Graph and Draw (Basic) the security market line if the market-risk premium is 5% and the risk-free rate is 7%.

a) Suppose that an asset has a beta of -1 and an expected return of 4%. Plot it on the graph you drew. Is the security properly priced? If not, explain what will happen in this market.

b) Suppose that an asset has a beta of 3 and an expected return of 20%. Plot it on the graph you drew. Is the security properly priced? If not, explain what will happen in this market.

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