The discussion topics for this week are:

Expected return on two stocks for two particular market returns:

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

b$.$ What is the expected rate of return on each stock if the market return is equally likely to be $3\%$ or $20\%?$

c$.$ If the T$-$bill rate is $2\%$ and the market return is equally likely to be $3\%$ or $20\%,$ draw the SML for this economy.

d$.$ Which stock is undervalued and which stock is overvalued? Why?

Please determine the WACC $($weighted average cost of capital$)$ for the company with following assumptions: The company maintains a debt$-$to

marginal tax rate is $30\%.$ The company's current bonds have a yield to maturity of about $6\mathrm{.}00\%.$ The current $10-$year Treasury notes have a yi

forecast for the S&P $500$ market return of $11\mathrm{.}00\%.$ The company's overall beta is $1\mathrm{.}20.$