3. Suppose the market portfolio is equally likely to increase by 10% or decrease by 20%.

   1. (a) Suppose firm A goes up by 20x% when the market goes up, where x is the value obtained by rolling a fair six-sided die. When the market goes down, firm A goes up by 5%. Compute the Beta of firm A by computing the average increase in each case.

   2. (b) Firm B goes down by half the amount that firm A goes up. Compute the Beta of firm B.

   3. (c) Estimate the expected returns of firm A and firm B. How do they compare with the actual ex- pected returns?