Odle Adle Abeba cele Body Question 1. (a) Explain the similarities and differences between the capital market line (CML) and security market line (SML) of the capital asset pricing model (CAPM). b) The following information is available for three of the many stocks in the equity market and for the market index Expected Return Standard Deviation of returns Hove plc 5% 7% Indigo plc 15% Jayden plc 25% 27% Market Index 14% 12% The risk free rate of interest is 1% () This market is currently in equilibrium according to the CAPM. Calculate the beta vale for each of the three stocks and interpret the values. 16% (W) Calculate whether the three stocks plot on the CML. What conclusions do you draw (H) A new stock (Kevan plc) is introduced to this market. On its introduction, it has expected return of 19% and a beta value of 1.3. Comment on the likely outcome of the situation