MAKE SURE TO DO THE GRAPH.

10. The Capital Asset Pricing Model and the security market line Keith holds a portfolio that is invested equally in three stocks (wp-WA = W - 1/3). Each stock is described in the following table: Start you Expected Return 8.0% Stock DET AIL INO Beta 0.7 1.0 1.6 Standard Deviation 25% 38% 34% 10.0% 13.596 An analyst has used market and firm-specific information to make expected return estimates for each stock. The analyst's expected return estimates may or may not equal the stocks' required returns. The nike free rate this and the market risk premium (RPMis 4%. Use the following graph with the security market line (SML) to plot each stock's beta and expected return. (Note: Click on the points on the graph to see their coordinates.) An analyst has used market and firm-specific information to make expected return estimates for each stock. The analyst's expected return estimates may or may not equal the stocks' required returns. The risk-free rate (TRP) is 6%, and the market risk premium (RPM) is 4%. Use the following graph with the security market line (SML) to plot each stock's beta and expected return. (Note: Click on the points on the graph to see their coordinates.) Stock DET Stock AIL RATE OF RETURN Percent) Stock INO 08: Assignment - Risk and Rates of Return Stock DET Stock AIL RATE OF RETURN (Percent) Stock INO D G 0 0.2 0.4 0.6 equals 0.8 10 12 RISK (Beta) is less than is more than A stock is in equilibrium if its required return its expected return. In general, assume that markets and stocks are in equilibrium (or fairly valued), but sometimes investors have different opinions about a stock's prospects and may think that a stock is out of equilibrium (either undervalued or overvalued). Based on the analyst's expectel yeturn estimates, stock INO is stock AIL is in equilibrium, and Stock DET Grade it Now Save & Continue Ch 08: Assignment - Risk and Rates of Return Stock DET Stock AIL RATE OF RETURN (Percent) Stock INO 02 04 06 08 10 12 14 16 18 20 RISK (Beta) overvalued undervalued A stock is in equilibrium if its required return its expected return. In gend in equilibrium (or fairly valued), but sometimes investors have different opinions about a stock's prospects undervalued or overvalued). Based on the analyst's expected return estimates, stock INO is stock DET is markets and stocks are in equilibrium hat a stock is out of equilibrium (either stock AIL is in equilibrium, and Ch 08: Assignment - Risk and Rates of Return Stock DET Stock AIL RATE OF RETURN (Percent) Stock INO 02 04 06 08 10 12 14 16 18 20 RISK (Beta) overvalued A stock is in in equilibrium required return its expected return. In general, assume that markets and stocks are in equilibrium (or fairly vald nes investors have different opinions about a stock's prospects and may think that a stock is out of equilibrium (either undervalued undervalued based on the analyst's expected return estimates, stock INO is stock AIL is in equilibrium, and stock DET is