$4.$ Consider the following table, which gives a security analyst's expected return on two stocks for two particular market returns:

Market Return

Aggressive Stock

Defensive Stock

$5\%$

$20\%$

$2\%$

$3\mathrm{.}5\%$

$32\%$

$14\%$

What are the betas of the two stocks?

What is the expected rate of return on each stock if the market return is equally

$11.$

likely to be $5\%$ or $20\%?$ If the T$-$bill rate is $8\%$ and the market return is equally likely to be $5\%$ or $20\%,$ draw the SML for this economy. $111.$

IV$.$ Plot the two securities on the SML graph.

V$.$ What are the alphas of each?

V$1.$ What hurdle rate should be used by the management of the aggressive firm for a project with the risk characteristics of the defensive firm's stock?