Problem 12-14 Expected Returns

Problem 12-14 Expected Returns (LO2) 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 Aggressive Defensive Market Stock A Stock D -8% -115 -6% Scenario Bust -225 -6% Boom 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 3%, 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 Required D b. If each scenario is equally likely, find the expected rate of return on the mar c. If the T-bill rate is 3%, what does the CAPM say about the fair expected rate d. Which stock seems to be a better buy on the basis of your answers to (a) thr 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 Het Required B > b. If each scenario is equally likely, find the expected rate of return c. If the T-bill rate is 3%, what does the CAPM say about the fair expe d. Which stock seems to be a better buy on the basis of your answe Complete this question by entering your answers in the tabs b Required A Required B Required C Required D If each scenario is equally likely, find the expected rate of return on the answers as a whole percent.) ences Expected Rate of Return Market portfolio Stock A Stock D |