Question: The following table contains information based on analysts' forecasts for three stocks. Assume at-bill rate of 5% and S&P500 returns of 13%. Stock Today's PRice

The following table contains information based on analysts' forecasts for three stocks. Assume at-bill rate of 5% and S&P500 returns of 13%.

Stock Today's PRice expected price in 1 year expected dividend in 1 year beta
A 25.00 26.00 1.25 0.5
B 30.00 33.00 1.50 1.0
C 15.00 6.00 0.80 1.25

a. Compute the expected return and the required return on each stock

b. Define the Security Market Line (SML) and briefly discuss its usefulness to portfolio managers

c. Plot the SML for each security. Determine and explain whether each stock is undervalued,

overvalued, or fairly valued.

d. Outline an appropriate trading strategy for each stock using the available information and the results generated.

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