In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. The jury came back today with its decision. The rate of return on Apex was rA = 3.5%. The rate of return on Bpex was only rB = 2.9%. The market today responded to very encouraging news about the unemployment rate, and rM = 3.2%. The historical relationship between returns on these stocks and the market portfolio has been estimated from index model regressions as: Apex: rA = 0.4% + 1.1rM Bpex: rB = 0.1% + 0.5rM

Apex: r_A = 0.4% + 1.1r_M

Answer is complete but not entirely correct.

	Predicted Returns
Apex	t	%
Bpex

Bpex: r_B = 0.1% + 0.5r_M