consider the following two scenarios for the economy and the expected returns in each scenario for the
Question:
consider the following two scenarios for the economy and the expected returns in each scenario for the market portfolio, an aggressive stock A, and a defensive stock D.
Scenario Market Stock A Stock D
Bust -5% -7% -3%
Boom 27 35 19
A. find the beta of each stock. (round your answer to 2 decimal places.)
B. if each scenario is equally likely, find the expected rate of return on the market portfolio and on each stock. (enter your answer as a whole percent)
C. If the T-bill rate is 4%, what does the CAPM say about the fair expected rate of return on the two stocks? (do not round intermediate calculations. enter your answer as a percent rounded to 2 decimal place.)
D. Which stock seems to be a better buy on the basis of your answers to (a) through (c)?