Question: Expected return on two stocks for two particular market returns: Market Return Aggressive Stock Defensive Stock 4% 0% 6% 18% 30% 12% What are the

Expected return on two stocks for two particular market returns:

Market Return Aggressive Stock Defensive Stock

4% 0% 6%

18% 30% 12%

  1. What are the betas of the two stocks?
  2. What is the expected rate of return on each stock if the market return is equally likely to be 4% or 18%?
  3. If the T-bill rate is 3% and the market return is equally likely to be 4% or 18%, draw the SML for this economy.

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