Question

Check my work View previous attempt Consider the following table, which gives a security analyst's expected return on two stocks for two particular market returns: Market Return Aggressive Stock 3.8% 32 Defensive Stock 5.0% 15 10 points a. What are the betas of the two stocks? (Round your answers to 2 decimal places.) eBook Print Beta A References Beta D b. What is the expected rate of return on each stock if the market return is equally likely to be 8% or 20%? (Round your answers to 2 decimal places.) Rate of return on A Rate of return on D

Answer 1

Beta of stock=(Return 2-Return 1)/(Market 2-Market 1)

Expected Return=Sum(probability*return)
for equally likely, probability=0.5

Alpha=Expected Return-risk free rate-beta*(market return-risk free rate)

1.
=(3.8%-32%)/(8%-20%)
=2.35

2.
=(5%-15%)/(8%-20%)
=0.833333333

3.
=(3.8%+32%)/2
=17.90%

4.
=(5%+15%)/2
=10.00%

5.
=(3.8%+32%)/2-(7%+(3.8%-32%)/(8%-20%)*(1/2*(8%+20%)-7%))
=-5.55%

6.
=(5%+15%)/2-(7%+(5%-15%)/(8%-20%)*(1/2*(8%+20%)-7%))
=-2.83%