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III. Consider the following Table, which gives a security analyst's expected returns on two stocks and the market portfolio for two possible economic states:
III. Consider the following Table, which gives a security analyst's expected returns on two stocks and the market portfolio for two possible economic states: (25 points) IV. Market Portfolio State 1 State 2 0% 10% Aggressive Stock 0% Defensive Stock 0% 20% 30% a) What are the market betas of the two stocks? (7 points) b) What is the expected rate of return on each stock if the economy is equally likely to be in the two economic states? (7 points) c) If the T-bill rate is 1% and the economy is equally likely to be in the two economic states. What are the alphas of the two stocks? (7 points) d) Are there arbitrage opportunities? (4 points)
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