QUESTION THREE A. Give two differences between the capital market line (CML) and the security market line (SML). 3 marks B. A company has a beta of 1.15. The market risk premium is 7 percent. The risk-free rate of return is 4 percent Required: i. Compute the required rate of return of the company 2 marks ii. Compute the risk premium on the company's common stock 2 marks C. Assume the T/bills are generating a return of 5 percent. The return on the Ghana Stock Exchange Index (GSEI) is 12 percent. Company A's return are 20 percent less volatile than the market Required: Calculate the required rate of return of company A's stock. 2 marks D. The stock market is expected to generate an 11 percent return. The standard deviation of the market return in 15 percent. A listed company's returns are consistently 20 percent more volatile than the market and the risk-free rate is 4 percent. Required: Calculate the required rate of return of the company. 2 marks E. Suppose the expected return on the market is 12 percent, the risk-free rate is 4 percent and the standard deviation for the market is 2 percent. Required: i. Calculate the expected rate of return for a portfolio that has a standard deviation of 1%. 2 marks ii. Draw a graph to show the capital market line in this question. 2 marks Total 15 marks