An analyst has used market- and firm-specific information to generate expected return estimates for each stock. The analyst’s expected return estimates may or may not equal the stocks’ required returns. You’ve also determined that the risk-free rate [rRF] is 4%, and the market risk premium [RPM] is 5%. Given this information, use the following graph of the security market line (SML) to plot each stock’s beta and expected return on the graph. (Note: Click on the points on the graph to see their coordinates.) Stock A Stock B Stock C 0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 20 18 16 14 12 10 8 6 4 2 0 RATE OF RETURN (Percent) RISK (Beta)
