d$.$ Plot the Security Market Line.

Select the correct graph.

The correct graph is

A

B$.$

C$.$

e$.$ Suppose you hold a large, well$-$diversified portfolio and are considering adding to that portfolio either Stock $x$ or another stock,

Stock $Y,$ which has the same beta as Stock $x$ but a higher standard deviation of returns. Stocks $x$ and $Y$ have the same expected

returns:

hat$(r{)}_x=$

hat$(r{)}_Y=10\mathrm{.}6\%.$ Which stock should you choose?You are given the following set of data:

HISTORICAL RATES OF RETURN

The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the

required analysis to answer the questions below.

Open spreadsheet

a$.$ Use a spreadsheet $($or a calculator with a linear regression function$)$ to determine Stock X$\text{'}$s beta

coefficient. Do not round intermediate calculations. Round your answer to two decimal places.

Beta $=$

b$.$ Determine the arithmetic average rates of return for Stock $x$ and the NYSE over the period given.

Calculate the standard deviations of returns for both Stock $x$ and the NYSE. Do not round intermediate

calculations. Round your answers to two decimal places.

NYSE

Average return, $\frac{?}{\text{b}\text{a}\text{r}}(r{)}_{\text{A}\text{v}\text{g}}$

Standard deviation, $$

Stock X

c$.$ Assume that the situation during Years $1$ to $7$ is expected to prevail in the future $($i$.$e$.,$

hat$(r{)}_x\frac{?}{b}=ar(r{)}_{x,\text{A}\text{v}\text{e}\text{r}\text{a}\text{g}\text{e}}$

hat$(r{)}_M\frac{?}{b}=ar(r{)}_{M,\text{A}\text{v}\text{e}\text{r}\text{a}\text{g}\text{e}},$ and both ${}_x$ and $b_x$ in the future will equal their past values$).$ Also assume that Stock

X is in equilibrium $-$ that is$,$ it plots on the Security Market Line. What is the risk$-$free rate? Do not round

intermediate calculations. Round your answer to two decimal places.

d$.$ Plot the Security Market Line.