Consider an economy that is binary; that is, it is either in a state of boom or bust. There are two firms to consider, Aggressive Advertising and Defensive Diggers. The following shows the returns for the market and these two firms in the states of the economy. (12 points)

Economy	Market Return	Aggressive Advertising	Defensive Drawing
Bust	-8%	-14%	-7%
Boom	15%	26.25%	13.1%

__ 1) What is the beta for each stock?

__ 2) Assuming a 25-75 likelihood of each scenario (25 bust, 75 boom), what are the expected returns of the 3 portfolios containing only the market securities, only AAs stock, and only DDs stock?

3) Assume T-bills are trading at 4%. What should the expected return for each stock be?