Question: Draw/plot the SML assuming that the risk free rate is 4% and the market earns 12% on average with a variance of 6. Plot asset

Draw/plot the SML assuming that the risk free rate is 4% and the market earns 12% on average with a variance of 6. Plot asset C such that it has less risk than the market but plots above the SML... Plot asset D such that it has more risk than the market and plotsbeow the SML.. (be sure to indicate where the market portfolio is on your graph.)

(a) Is asset C correctly priced, under priced or overpriced?

(b)If asset C in incorrectly priced, how will it be returned to equilibrium (the SML)?

(d)If asset D is incorrectly priced, how will it be returned to equilibrium (the SML)? be sure to clearly label the graph ( both axes, and all relevant plotted points)

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