The following information describes the expected return and risk relationship for the stocks of two of WAH's
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The following information describes the expected return and risk relationship for the stocks of two of WAH's competitors. Stock X 12.0% 20% 1.3 Stock Y 9.0 15 0.7 Market Index 10.0 12 1.0 Risk-free rate 5.0 Using only the data shown in the preceding table: a. (4 points) Draw and label a graph showing the security market line, and position Stocks X and Y relative to it. b. (4 points) Compute the alphas both for Stock X and for Stock Y. Show your work. c. (6 points) Assume that the risk-free rate increases to 7 percent, with the other data in the preceding matrix remaining unchanged. Select the stock providing the higher expected risk adjusted return and justify your selection. Show your calculations.
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