Wilson holds a portfolio that invests equally in three stocks (wA - Wwe - 1/3). Each stock is described in the following table: Stock Beta Standard Deviation 23% Expected Return 2.5% 0.5 1.0 38% 12.09% 2.0 45% 14.096 An analyst has used market and form-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 (nu) is 4%, and the market risk premium [RPM) is 5% Given this information, use the following graph of the security market line (SME) to plot each stock's beta and expected return on the graph. (Note: Click on the points on the graph to see their coordinates.) 20 10 Stock A 16 Stock RETURN Percent N 0 Given this information, use the following graph of the security market line (SMU) to plot cach stock's beta and expected return on the graph (Note: Click on the points on the graph to see their coordinates.) 18 Stock A 16 10 A 12 Stock RATE OF RETURN(Percent 10 . Stock 0 0 02 1.4 16 18 20 04 06 08 10 12 RISK (Beta) Astock is in equilium fit expected return its required retium. In general, assume that markets and stocles are in equilibrium (or fairly valued), but sometimes investors have different opinions about a stock prospects and may think that a stock is out of equilibrium (either ** archi 20 10 0 16 Stock A 14 A Stock B RATE OF RETURN (Percent) Stock 02 04 06 equals 20 08 10 12 RISK (Betis) is more than is less than A stock is in equilibrium if its expected return its required retum, In general, assume that markets and stocks are in equilibrium (or fairly valued), but sometimes investors have different opinions about a stock's prospects and may think that a stock is out of equilibrium (either undervalued or overvalued). Based on the analyst's expected return estimates, Stock AS Stock Bis and Stock in equilibrium and fairly valued. Grade R Now Save & Continue Continue without saving 15 Stock A 14 A 12 Stock 8 10 RATE OF RETURN(Poront) | Stock - 2 0 02 04 05 14 16 18 20 08 10 1.2 RISK (Beta) undervalued overvalued in equilibrium A stock is in equilibrium if its expected return its required return. In fairly valued), but sometimes investors have different opinions about a stock's prospects undervalued or overvalued). Based on the analyst's expected return estimates, Stock As Stock is in equilibrium and fairly valued at markets and stocks are in equilibrium (or a stock is out of equilibrium (either Stock Bis and Grade it Now Save & Continue Continue without saving O AE Nd 20 18 16 Stock A 14 A Stock B RATE OF RETURN (Percent) 10 Stock 0 02 04 05 16 18 20 00 10 12 RISK (Beta) overvalued undervalued Bilibrium (os in equilibrium ther Astock is in equilibrium if its expected return its required retum. In general, assume that markets and fairly valued), but sometimes investors have different opinions about a stock's prospects and may think that a stock is out undervalued or overvalued). Based on the analysts expected return estimates Stock AB Stock Bis Stock equilibrium und fairly valued . and Grade It Now Save & Continue Continue without saving N02