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 Returm

Aggressive Defensive

Scenario Market Stock A Stock D

Bust -8% -13% -6%

Boom 26 35 19

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 5%, what does the CAPM say about the fair expected rate of return on the two stocks?

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

question by entering your answers in the tabs below.

Find the beta of each stock

Beta

Stock A

Stock D

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 is 5%, what does the CAPM say about the fair rate expected rate of return on the two stocks? (Do not intermediate calculations. Enter your answer 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)