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5. Consider two equally likely scenarios, 'boom' or 'bust.' In scenario 'bust,' the market will lose 8%, Stock A will lose 10%, and Stock D
5. Consider two equally likely scenarios, 'boom' or 'bust.' In scenario 'bust,' the market will lose 8%, Stock A will lose 10%, and Stock D will lose 6%. In scenario 'boom,' the market will gain 32%, Stock A will gain 38%, and Stock D will gain 24%. Find the beta of each stock based on the change in the stock return as a function of the change in the market return across scenarios. a. b. Find the expected return on the market portfolio and each stock based on the scenarios and outcomes. C. If the risk-free rate is 4%, what would be the fair CAPM return for each stock based on its beta? d. Which stock seems to be a better investment based on your answers to a., b., and c
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