• Item 11
• 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
Scenario		Market				Aggressive Stock A				Defensive 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)?

Complete this question by entering your answers in the tabs below.

• Required A

• Required B
• Required C
• Required D

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

	Beta
Stock A
Stock D

• Required A