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8) Consider the following two scenarios for the economy and the returns in each scenario for the market portfolio, an aggressive stock A, and a
8) Consider the following two scenarios for the economy and the returns in each scenario for the market portfolio, an aggressive stock A, and a defensive stock D. Scenario Bust Boom Market Return -8% 32% Return A -10% 38% Return D -6% 24% a. Find the beta of each stock. In what way is stock D defensive? b. If each scenario is equally likely, find the expected rate of return on the market portfolio and each stock. C. If the T-bill rate is 4%, what does the CAPM say about the fair expected rate of return on these two stocks? d. Which stock seems to be a better buy on the basis of your answers to (a) through (c)
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