HAND CALCULATIONS REQUIRED.

Question 2 (1+1+1=3 marks) Rodomontade has derived the following information for the companies listed in the table on the basis of five years of monthly data: Company Pim Samovar 12.1% 0.72 Challis 14.6% 0.33 Brightsun 7.6% 0.55 Purolac 10.2% 0.60 Market Index 5.5% 1.00 Required: (a) Note: beta can be calculated as Compute the beta coefficient for each stock. P., . B = om COV (b) Assuming a risk-free rate of 6 percent and an expected return for the market portfolio of 12 percent, compute the expected (required) return for each stock and plot them on the Security Market Line (SML). (c) Plot the following estimates of an analyst's forecast returns during the next year on the SML and indicate which of these stocks are undervalued or overvalued. Samovar 20% . Challis 13% Brightsun 16% . Purolac 12%