$1.$ Expected return on two stocks for two particular market returns:

Market Return Aggressive Stock Defensive Stock

$8\%-5\%1\%$

$20\%25\%12\%$

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 $60\%$ likely to be $8\%$ and $40\%$ likely to be $20\%?$

c$.$ If the T$-$bill rate is $4\%$ and the market return is if the market return is $60\%$ likely to be $8\%$ and $40\%$ likely to be $20\%,$ draw the SML for this economy.

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