Chapter 8, Problem 21P

a.

Summary Introduction

To determine: The equation of the security market line.

Security Market Line:

The security market line is a line which shows the relationship between the risk which is measured by beta and the required return rate, which is for the individual securities.

b.

Summary Introduction

To determine: The required rate of return.

The Required Rate of Return:

The required rate of return is the rate which should be minimum earned on an investment to keep that investment running in the market. When the required return is earned only then the users and the companies will invest in that particular investment.

c.

Summary Introduction

To determine: The decision of the new investment in the new company and the expected rate of return.