Consider the following table, which gives a security analysts expected return on two stocks for two particular

Question:

Consider the following table, which gives a security analystâ€™s 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 5% or 25%?
c. If the T-bill rate is 6% and the market return is equally likely to be 5% or 25%, draw the SML for this economy.
d. Plot the two securities on the SML graph. What are the alphas of each?
e. What hurdle rate should be used by the management of the aggressive firm for a project with the risk characteristics of the defensive firmâ€™sstock?

Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing... Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...