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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
Boom
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 Tbill rate is 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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