$($Capital asset pricing model$)$ Grace Corporation is considering the following investments. The current rate on Treasury bills is $0\mathrm{.}5$ percent and the expected return for the market is $9$ percent.

$($Click on the icon in order to copy its contents into a spreadsheet.$)$

a$.$ Using the CAPM, what rates of return should Grace require for each individual security?

b$.$ How would your evaluation of the expected rates of return for Grace change if the risk$-$free rate were to rise to $2$ percent and the market risk premium were to be only $8$ percent?

c$.$ Which market risk premium scenario $($from part a or b$)$ best fits a recessionary environment? A period of economic expansion? Explain your response.

a$.$ The expected rate of return for security $K,$ which has a beta of $1\mathrm{.}12,$ is

$\%.($Round to two decimal places.$)$

The expected rate of return for security $G,$ which has a beta of $1\mathrm{.}27,$ is

$\%.($Round to two decimal places.$)$

The expected rate of return for security $B,$ which has a beta of $0\mathrm{.}85,$ is

$\%.($Round to two decimal places.$)$

The expected rate of return for security $U,$ which has a beta of $0\mathrm{.}97,$ is

$\%.($Round to two decimal places.$)$

b$.$ If the risk$-$free rate were to rise to $2\%$ and the market risk premium were to be only $8\%,$ the expected rate of return for security $K$ is

$\%.($Round to two decimal places.$)$

If the risk$-$free rate were to rise to $2\%$ and the market risk premium were to be only $8\%,$ the expected rate of return for security $G$ is

$\%.($Round to two decimal places.$)$

If the risk$-$free rate were to rise to $2\%$ and the market risk premium were to be only $8\%,$ the expected rate of return for security B is

$\%.($Round to two decimal places.$)$

If the risk$-$free rate were to rise to $2\%$ and the market risk premium were to be only $8\%,$ the expected rate of return for security $U$ is

$\%.($Round to two decimal places.$)$

c$.$ Which market risk premium scenario $($from part $a$ or $b$ best fits a recessionary environment?

$($Select from the drop$-$down menu.$)$

Which market risk premium scenario $($from part $a$ or $b)$ best fits a period of economic expansion?

$($Select from the drop$-$down menu.$)$