Draw the security market line with clear labels

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Suppose you observe the following situation:

Security       T22.1        T15.0

Beta                2.31      0.66

Expected Return 22.1    15.0

Problem 1: If the current market data shows that the risk-free rate is 3.71 percent, are these securities correctly priced?

Problem 2: What would the risk-free rate have to be if these securities are correctly priced?

Problem 3: If these two securities are correctly priced, find the market risk premium (using the findings of Requirement-B).

Problem 4: Draw the Security Market Line (SML) with clear labels, and plot these two securities on the graph along with the market and risk-free rate (using the findings of Requirements B and C).

Reference no: EM132752766

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