Suppose the rate of return on short$-$term government securities $($perceived to be risk$-$free$)$ is about $7\%.$ Suppose also that the expected rate of return required by the market for a portfolio with a beta of $1$ is $16\%.$ According to the capital assetConsider the following table, which gives a security analyst's expected return on two stocks in two particular scenarios for the rate of

return on the market:

Required:

a$.$ What are the betas of the two stocks?

b$.$ What is the expected rate of return on each stock if the two scenarios for the market return are equally likely?

e$.$ What hurdle rate should be used by the management of the aggressive firm for a project with the risk characteristics of the

defensive firm's stock if market return is equally likely to be $4\%$ or $24\%?$ Also, assume a T$-$Bill rate of $3\%.$

Complete this question by entering your answers in the tabs below.

What are the betas of the two stocks?

Note: Do not round intermediate calculations. Round your answers to $2$ decimal places. pricing model:

Required:

What is the expected rate of return on the market portfolio?

Note: Round your answer to $2$ decimal places.

What would be the expected rate of return on a stock with $\backslash$beta $=0?$

Note: Round your answer to $2$ decimal places.

Suppose you consider buying a share of stock at $$60.$ The stock is expected to pay $$2$ dividends next year and you expect it to sell then for $$63.$ The stock risk has been evaluated at $\backslash$beta $=0\mathrm{.}5.$ Is the stock overpriced or underpriced?