Market returns and expected stock returns for Stocks A and B:

Market Return Stock A Stock B

Scenario 1 8% 10% 6%

Scenario 2 18% 28% 12%

What is the beta of each stock?

If Scenario 1 is 60% likely to occur and Scenario 2 is 40% likely to occur, what is the expected return on each stock?

If the T-Bill rate is 4%, and if the two scenarios were equally likely to happen draw the security market line and show each stock's position on the chart.

If both scenarios were equally likely to happen and if the investor placed one third of his or her money in each investment option (Stock A, Stock B and Risk Free), where would their expected return show on the security market line chart?