Question
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
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 |
8% | 3.6% | 5.4% |
20 | 26 | 12 |
|
a. What are the betas of the two stocks? (Round your answers to 2 decimal places.)
Beta A | |
Beta D | |
|
b. What is the expected rate of return on each stock if the market return is equally likely to be 8% or 20%? (Round your answers to 2 decimal places.)
Rate of return on A | % |
Rate of return on D | % |
|
c. If the T-bill rate is 7%, and the market return is equally likely to be 8% or 20%, what are the alphas of the two stocks? (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)
Alpha A | % |
Alpha D | % |
|
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