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The security market line (SML) is presented in the graph in Figure 1 below: E(r)...

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Finance

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The security market line (SML) is presented in the graph in Figure 1 below: E(r) 11.0% SML 3.0% beta=1 Figure 1: SML Suppose stock A with a beta of 1.25 is offering an expected return of 15.0%. a. What is the expected return on stock A, according to CAPM? (3 marks) b. Is this stock over or under priced? (2 marks) C. What is stock A's alpha? What does this alpha indicate about stock A

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