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 Bust with Market -9%, Rate of Return Aggressive Stock A -10% and Defensive Stock D -7%

Scenario Boom with Market 43, Rate of Return Aggressive Stock A 50 and Defensive Stock D 13

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 3%, 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)?