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Consider the following two scenarios for the economy and the expected returns in each scenario for the market portfolio, an ggressive stock A, and a
Consider the following two scenarios for the economy and the expected returns in each scenario for the market portfolio, an ggressive stock A, and a defensive stock D Rate of Return Aggressive Defensive Scenario Bust Boom Market tock A Stock D -11% 34 -9% 26 -6%. 18 a. Find the beta of each stock. (Round your answers to 2 decimal places.) Beta Stock A Stock D 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.) Expected Rate of Return Market portfolio Stock A Stock D C. If the T-bill rate is 3%, 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.) Expected Rate of Return Stock A Stock D d. Which stock seemsto be a better buy on the basis of your answers to (a) through (c)? Stock D Stock A
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