$2.$ Expected return on two stocks for two particular market returns:

Market Return Aggressive Stock Defensive Stock

$2\%-6\%4\%$

$22\%36\%18\%$

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 $2\%$ and $40\%$ likely to be $22\%?$

c$.$ If the T$-$bill rate is $3\%$ and the market return is $60\%$ likely to be $2\%$ and $40\%$ likely to be $22\%,$ draw the SML for this economy.

d$.$ Between aggressive and defensive stocks, which one is undervalued, which is overvalued, and why?