Suppose the market portfolios return is 30% when the economy is strong and -20% when the economy is weak. A type S firm has a return of 45% when the economy is strong and a return of -30% when the economy is weak. A type I firm has also returns equal to 45% or -30%, but these returns will depend only upon firm-specific events and will be completely independent of the state of the economy.

(a) What is the beta for a type I firm? (1) 1 (2) 0.75 (3) 0 (4) 1.5 (b) What is the beta for a type S firm? (1) 1.5 (2) 0 (3) 1 (4) 0.75