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Calculate and graphically display the sml

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Reference no: EM132933416

Christopher Buxton is an analyst for Hanns G Investments and has been tasked with making recommendations to a key client with regards to investment opportunities the clients are considering. They have provided the following information:

Name                E(Return)           BETA
Next Plc             8%                 1.05
ITV                   15%                1.20
Smith Group       10%                   1.55
Tate & Lyle         11%                    0.95

The return on a Government Bond at 3% and the FTSE 100 index rose from 7023 to 7687 in the last 12 months.

Requirement:

Problem a) Explain the difference between Expected return and Required return

Problem b) Calculate and graphically display the SML

Problem c) For each of the four investment opportunities listed above calculate and display graphically whether they are under- or over-priced

Problem d) Explain the difference between the Capital Asset Pricing Model, Arbitrage Theory (Ross, 1976) and Fama & French's Three-Factor

Reference no: EM132933416

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