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Scenario Rate of Return Market Aggressive Stock A Defensive Stock D Bust 9 % 1 2 % 8 % Boom 3 2 4 0 2

Scenario Rate of Return
Market Aggressive Stock A Defensive Stock D
Bust 9%12%8%
Boom 324027
Required:
Find the beta of each stock.
If each scenario is equally likely, find the expected rate of return on the market portfolio and on each stock.
If the T-bill rate is 4%, what does the CAPM say about the fair expected rate of return on the two stocks?
Which stock seems to be a better buy on the basis of your answers to (a) through (c)?

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