The following information describes the expected return and risk relationship for the stocks of two of WAH's competitors.

Using only the data shown in the preceding table:
a. Draw and label a graph showing the security market line, and position Stocks X and Y relative to it.
b. Compute the alphas both for Stock X and for Stock Y. Show your work.
c. 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.

Expected Return 12.0% 9.0 10.0 5.0 Standard Deviation Stock X Stock Y Market Index Risk-free rate 20% 15 12 Beta Return 1.3 0.7 1.0