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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 | 7% | 10% | 5% |
| Boom | 19 | 25 | 15 |
Required:
- Find the beta of each stock.
- If each scenario is equally likely, find the expected rate of return on the market portfolio and on each stock.
- If the T-bill rate is 4%, what does the CAPM say about the fair expected rate of return on the two stocks?
- Which stock seems to be a better buy on the basis of your answers to (a) through (c)?
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Corporate Credit A CFOs Guide To Bank Debt And Loan Agreements
Authors: Susan C. Alker
1st Edition
B089M2DG8V, 979-8649897921
