Share
Explore BrainMass

Security Market Line

The information below has been obtained for several financial assets.

Asset Expected Return (ER) Beta (risk)

T-Bill 10% 0.0
Alar's Stock 12% 0.4
Bolo's Stock 13.8% 0.6
Cala's Stock 15.5% 1.0
Domo's Stock 17.3% 1.4

Given the above information:

a. Graph the Security Market Line(SML)using the coordinates B(beta)=1; E(Rm)=15%.

b. Based on part(a), which assets are over or under priced?

Solution Preview

The information below has been obtained for several financial assets.

Asset Expected Return (ER) Beta (risk)

T-Bill 10% 0.0
Alar's Stock 12% 0.4
Bolo's Stock 13.8% 0.6
Cala's Stock 15.5% 1.0
Domo's Stock 17.3% ...

Solution Summary

Graphs Security Market Line and finds out which assets are over or under priced.

$2.19