8. Consider the following table, which gives a security analyst's expected retum on two stocks for two particular market returns: Sof the market returns in one possible scenario then Market Returneressive Stock Defensive Stock a. What are the betas of the two stocks laggressive stock and defensive stock12 Hint: The beta is the sensitivity of the stock's return to the market retum, or, the change in the stock return perunt change in the market retum Use the equation Beta-expected return by stockin 8% return market -expected return in 20% market/imarket return in scenario market return in scenario Bl b. What is the expected rate of return on each stock if the market return is equally likely to be 8 or 20%? Hint: Use a weighted average here c) If the T-bil rate is 8%, and the market return is equally likely to be 8% or 20%, what are the alphas of the two stocks? 9. Calculate the Sharpe ratios for the market portfolio and portfolio a. Portfolio Expected Return Deviation Risk-free Market 12.2 31 Use the equation for the Sharpe Ratio: If the simple CAPM is vald, is the above situation possible? Hint: remember what CAPM is predicting about the market portfolio