Suppose the market portfolio is equally likely to increase by 30% or decrease by 10% . Also suppose that the risk-free interest rate is 4% .

a. Use the beta of a firm that goes up on average by 43% when the market goes up and goes down by 17% when the market goes down to estimate the expected return of its stock. How does this compare with the stock's actual expected return?

b. Use the beta of a firm that goes up on average by 18% when the market goes down and goes down by 22% when the market goes up to estimate the expected return of its stock. How does this compare with the stock's actual expected return?