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Security Market Line (SML). Assume that risk-free rate, Rf is currently 9% and that the market return, Km, is currently 13%. Draw the security market line on a set of "nondiversifaible risk (x-axis)?required return (y-axis)" axes.

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II.
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Chapter 5: Risk and Return
P5-26 Security Market Line (SML)

Question Details
P5-26
Security Market Line (SML). Assume that risk-free rate, Rf is currently 9% and that the market return, Km, is currently 13%
A. Draw the security market line on a set of "nondiversifaible risk (x-axis)?required return (y-axis)" axes.
B. Calculate and label the market risk premium on the axes in part a.
C. Given the previous data, calculate the required return on asset A having a beta of .80 and asset B having a beta of 1.30
D. Draw in the betas and required returns from part c for assets A and B on the axes in part a. Label the risk premium associated with each of these assets, and discuss them.

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