explain how the Capital Asset Pricing Model (CAPM) works. What are the strengths and weaknesses of the CAPM? (You may need to review Chapter 8 in Fundamentals of Financial Management to fully answer this question.) Using each of the four stocks you selected for your portfolio in the Week 4 discussions, calculate the Security Market Line (SML) equation for each stock. Assume a U.S. Treasury rate of 3% as the risk free rate in your SML. Use the beta for your stock as presented in http://finance.yahoo.com/. What does the SML tell you about your portfolio of stocks? How can the SML assist in predicting the expected return on your stocks? See attachment for wk 4 discussion portfolio.
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