Que 12) Please answer and Explain, Thankyou Your portfolio manager has asked you to join a conversation with a high net worth client, Charles Barker, to discuss market risk, risk premiums and risks associated with specific stocks You decide to rely on CAPM as a starting point along with the data on OC Drone Development Inc Show the expected return beta relationship in formulaic terms Use the SML to demonstrate the relationship between beta and expected return with the data provided below Explain alpha and discuss underpriced and over priced stocks Use the following data Risk free rate 2 5 , return on market 9 5 , OC stock B 1 40, and you believe that OC stock will return 12 95 over the next year

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Question: Que 12) Please answer and Explain, Thankyou! Your portfolio manager has asked you to join a conversation with a high net worth client, Charles Barker,

Que 12) Please answer and Explain, Thankyou!

Your portfolio manager has asked you to join a conversation with a high net worth client, Charles Barker, to discuss market risk, risk premiums and risks associated with specific stocks. You decide to rely on CAPM as a starting point along with the data on OC Drone Development Inc.
1. Show the expected return-beta relationship in formulaic terms
2. Use the SML to demonstrate the relationship between beta and expected return with the data provided below
3. Explain alpha and discuss underpriced and over-priced stocks.

Use the following data: Risk-free rate = 2.5%, return on market = 9.5%, OC stock B = 1.40, and you believe that OC stock will return 12.95% over the next year.

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