Consider the following two scenarios for the economy and the expected returns in each scenario for the market portfolio, an aggressive stock A, and a defensive stock D.

	Rate of Return
Scenario		Market				Aggressive Stock A				Defensive Stock D
Bust			10	%			13	%			4	%
Boom			30				38				17

Required: a. Find the beta of each stock. b. If each scenario is equally likely, find the expected rate of return on the market portfolio and on each stock. c. If the T-bill rate is 4%, what does the CAPM say about the fair expected rate of return on the two stocks? d. Which stock seems to be a better buy on the basis of your answers to (a) through (c)?

If each scenario is equally likely, find the expected rate of return on the market portfolio and on each stock. (Enter your answers as a whole percent.)

	Expected Rate of Return
Market portfolio		%
Stock A		%
Stock D		%

If the T-bill rate is 4%, what does the CAPM say about the fair expected rate of return on the two stocks? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

	Expected Rate of Return
Stock A		%
Stock D		%

Which stock seems to be a better buy on the basis of your answers to (a) through (c)?

Better buy