Problem:
The CEO wants an update on risk and feels believes the best way to do this is to discuss the relationship between risk and return and explain it in the context of the company's cost of capital.
Here is the information that we have:
The company's beta is 1.2.
The risk-free rate is 3%.
The required market return is 8%.
calculate the SML and discuss the pros and cons of using this measure.
I need a graph but am unsure how to proceed
Determine the relationship between risk and return by calculating stock and portfolio variance and understanding the security market line.