14. Expected Returns. Consider the following two scenarios for the economy and the expected returns in each scenario for the market portfolio, an aggressive stock A, and a defensive stock D.

		Rate of Return
Scenario	Market	Aggressive Stock A	Defensive Stock D
Bust	-8%	-10%	-6%
Boom	32	38	24

1. Find the beta of each stock. In what way is stock D defensive?

2. If each scenario is equally likely, find the expected rate of return on the market portfolio and on each stock.

3. If the T-bill rate is 4%, what does the CAPM say about the fair expected rate of return on the two stocks?

4. Which stock seems to be a better buy on the basis of your answers to parts (a), (b), and (c)?