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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
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.
Scenario | Rate of Return | ||
---|---|---|---|
Market | Aggressive Stock A | Defensive Stock D | |
Bust | 10% | 13% | 4% |
Boom | 30 | 38 | 17 |
Required:
- If the T-bill rate is 4%, what does the CAPM say about the fair expected rate of return on the two stocks?
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