Suppose that the three average returns per annum obtained in Part $($I$)$ are used as the estimates of the expected returns for the two stocks and the NZX$50$ stock market portfolio, respectively. Suppose that the risk$-$free rate is currently $4\%$ per annum.

a$.$ Draw a risk$-$return graph with beta of the x$-$axis and returns on the y$-$axis, which show the Security Market Line $($SML$),$ the market portfolio and the two stocks.

b$.$Determine the fair expected returns for the two stocks according to CAPM and discuss your findings.

Obtained data in part I,

Two stocks are $1.$ SPK$.$NZ average return $6\mathrm{.}25\%$ beta $0\mathrm{.}49$

$2.$ VCT$.$NZ average return $3\mathrm{.}46\%$ beta os $0\mathrm{.}73$

Portfolio average return $4\mathrm{.}86\%$ beta is $0\mathrm{.}61$

NZX$50$ Index average return is $3\mathrm{.}50\%$