Problem 11-20

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 r_A = 3.7%. The rate of return on Bpex was only r_B = 3.1%. The market today responded to very encouraging news about the unemployment rate, and r_M = 3.4%. The historical relationship between returns on these stocks and the market portfolio has been estimated from index model regressions as:

Apex: r_A = 0.4% + 1.4r_M

Bpex: r_B = 0.1% + 0.7r_M

a.	What is the predicted returns for Apex & Bpex? (Do not round intermediate calculations. Round your answers to 1 decimal place. Omit the "%" sign in your response.)

	Predicted Returns
Apex	%
Bpex	%