Question

Consider the following two scenarios for the economy and the expected returns in each scenario for the market portfolio, an aggressive stock A, and a defensive stock D. 

 a. Find the beta of each stock. (Round your answers to 2 decimal places.) 

 b. If each scenario is equally likely, find the expected rate of return on the market portfolio and on each stock. (Enter your answers as a whole percent.)  

 c. If the T-bill rate is 4%, what does the CAPM say about the fair expected rate of return on the two stocks? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) 

Answer 1