Using data from number $1$: The yield curve is currently flat; that is$,$ long$-$term Treasury bonds also have a $3\mathrm{.}0\%$ yield. Consequently, Merrill Finch assumes that the risk$-$free rate is $3\mathrm{.}0\%.(2)$ Write out the SML equation, use it to calculate the required rate of return on each alternative.

Risk$-$free rate Risk$-$free rate

Mkt return: rM $8\mathrm{.}0\%$ RPM

RPM: $($rM $-$ rRF$)$ Beta $1$ CAPM

rHT $=$

rM $=$

rUSR $=$

rTbill $=$

rColl $=$

Beta rs

$-1\mathrm{.}00$

$-0\mathrm{.}87$

$-0\mathrm{.}50$

$0\mathrm{.}00$

$0\mathrm{.}50$

$0\mathrm{.}88$

$1\mathrm{.}00$

$1\mathrm{.}31$

$1\mathrm{.}50$

$2\mathrm{.}00$