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Consider the following two scenarios for the economy and the returns in each scenario for the market portfolio, an aggressive stock A, and a defensive

Consider the following two scenarios for the economy and the returns in each scenario for the market portfolio, an aggressive stock A, and a defensive stock D.

Rate of Return

Scenario Market Aggressive Stock A Defensive Stock D
Bust 9% 10% 7%
Boom 25 28 20

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 percent rounded to 2 decimal places.)

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 %

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