PART "D" PLEASE

Two-Stock Portfolio Probability T-Bills 8.0% State of the Economy Recession Below Average Average Above Average Boom f Estimated Returns on Alternative Investments U.S. Market High Tech Collections Rubber Portfolio -22.0% 28.0% 10.0% -13.0% -2.0 14.7 -10.0 1.0 20.0 0.0 7.0 15.0 35.0 -10.0 45.0 29.0 50.0 - 20.0 30.0 43.0 0.1 0.2 0.4 0.2 0.1 8.0 8.0 8.0 8.0 o CV The economic forecasting staff has developed probability estimates for the state of the economy, and the rate of return on each alternative under each state of the economy. See columns 1 and 2 in the Table. The T-billsis risk free rate; High Tech, Inc., is an electronics firm; Collections, Inc., collects past-due debts, and U.S. Rubber manufactures tires and various other rubber and plastic products. The market portfolio is an index fund" that includes a market-weighted fraction of all publicly traded stocks; by investing in that fund, you can obtain average stock market results. Given the situation as described, answer the following questions: individua stocks if they were held in isolation? d. Discuss what beta measures and explain how it is used in risk analysis. The expected rates of return and the beta coefficients of the alternatives are as follows. Security Return (T) Risk (B) High Tech 17.4% 1.29 Market 15.0 1.00 U.S. Rubber 13.8 0.68 T-bills 8.0 0.00 Collections 1.7 -0.86 What is a beta coefficient, and how are betas used in risk analysis? Do the expected returns appear to be related to each alternative's market risk? Isit possible to choose among the alternatives on the basis of the information developed thus far