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Consider the following table, which gives a security analysts expected return on two stocks and the market index in two scenarios: Scenario Probability Market Return
Consider the following table, which gives a security analysts expected return on two stocks and the market index in two scenarios:
Scenario | Probability | Market Return | Aggressive Stock | Defensive Stock |
---|---|---|---|---|
1 | 0.5 | 8% | 3.4% | 5.2% |
2 | 0.5 | 20 | 32 | 15 |
Required:
a. What are the betas of the two stocks? (Round your answers to 2 decimal places.)
b. What is the expected rate of return on each stock? (Round your answers to 2 decimal places.)
c. If the T-bill rate is 7%, 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.)
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