Question: Consider the following table, which gives a security analyst's expected return on two stocks for two particular market returns: Market Return Aggressive Stock Defensive Stock
| Consider the following table, which gives a security analyst's expected return on two stocks for two particular market returns: |
| Market Return | Aggressive Stock | Defensive Stock |
| 7% | 2.7% | 4.5% |
| 14 | 29 | 10 |
| a. | What are the betas of the two stocks? (Round your answers to 2 decimal places.) |
| Beta A | |
| Beta D | |
| b. | What is the expected rate of return on each stock if the market return is equally likely to be 7% or 14%? (Round your answers to 2 decimal places.) |
| Rate of return on A | % |
| Rate of return on D | % |
| d. | If the T-bill rate is 8%, and the market return is equally likely to be 7% or 14%, what are the alphas of the two stocks? (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.) |
| Alpha A | % |
| Alpha D | % |
| My answers: Betas: 3.76 0.79 Rate of Return: 15.85% 7.25% Alphas: 2.21% -0.93% I can't get the Alpha values right. Please help me out... | |
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
