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/Aggressive Defensive

Market Stock A Stock D

Bust -8% -10% -6%

Boom 27 41 20

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 5%, 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)?

A. Find the beta of each stock. (Round your answers to 2 decimal places.

Stock A Beta:

Stock D Beta:

(B) 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.)

Market Portfolio (Expected Rate Of Return)

Stock A (Expected Rate Of Return)

Stock D (Expected Rate Of Return)

(C) If the T-bill rate is 5%, 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.)

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

Stock A (Expected Rate Of Return)

Stock D (Expected Rate Of Return)

(D) Better buy?