Question: Consider the following table, which gives a security analyst's expected return on two stocks in two particular scenarios for the rate of return on the

Consider the following table, which gives a security analyst's expected return on two stocks in two particular scenarios for the rate of return on the market:

Market Return Aggressive Stock Defensive Stock

5 % 2 % 6 %

25 38 12

What hurdle rate should be used by the management of the aggressive firm for a project with the risk characteristics of the defensive firm

s stock if market return is equally likely to be

5 %

25 % ?

Also, assume a T

-

Bill rate of

6 % .

Note: Do not round intermediate calculations. Round your answer to

1

decimal place.

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