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CAPM Q. 1. Consider the following table, which gives a security analyst's expected return on two stocks in two particular scenarios for the rate of return on the market: Market ReturnAggressive StockDefensive Stock 7% -4% 4% 23 37 11 a. What are the betas of the two stocks? (Do not round intermediate calculations. Round your answers to 2 decimal places.) b. What is the expected rate of return on each stock if the two scenarios for the market return are equally likely to be 7% or 23%? (Do not round intermediate calculations. Round your answers to 1 decimal place.) c. What hurdle rate should be used by the management of the aggressive firm for a project with the risk characteristics of the defensive firm's stock if the two scenarios for the market return are equally likely? Also, assume a T-Bill rate of 4%. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Q. 2. Assume that the risk-free rate of interest is 4% and the expected rate of return on the market is 18%. A share of stock sells for $52 today. It will pay a dividend of $4 per share at the end of the year. Its beta is 1.0. What do investors expect the stock to sell for at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Q. 3. Assume that the risk-free rate of interest is 6% and the expected rate of return on the market is 11%. I am buying a firm with an expected perpetual cash flow of $1,000 but am unsure of its risk. If ! think the beta of the firm is 1.1, when in fact the beta is really 2.2, how much more will I offer for the firm than it is truly worth? (Do not round intermediate calculations. Round your answer to 2 decimal places.)