The following information is provided for a stock market:

Assume the T$-$bill rate is $5\%.$ Also assume that if the economy is in a good condition, the rate

of return on the market will be $10\%,$ if the economy is in an unfavourable condition, the rate

of return on the market will be $6\%.$

a$.$ What is the expected rate of return if the market return is equally likely to be $10\%$ or

$6\%?$

b$.$ Calculate the beta coefficients for the two securities from the given information.

c$.$ You are told that the mean rates of return for securities A and B are $7\mathrm{.}5\%$ and $4\mathrm{.}6\%$

respectively. What would you infer from this information in the context of the Capital

Asset Pricing Model?

d$.$ Draw the SML for this economy and plot the two securities on the SML graph.

e$.$ What hurdle rate should be used by the management of firm A $($the company that

issues stock A$)$ for a project with the risk characteristics of stock B$?$ Please include Equations and Explanation. Thanks!