Question: Expected return on two stocks for two particular market returns: Market Return Aggressive Stock Defensive Stock 5% -4% 7% 20% 30% 14% What are the

  1. Expected return on two stocks for two particular market returns:

Market Return Aggressive Stock Defensive Stock

5% -4% 7%

20% 30% 14%

  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 40% likely to be 5% and 60% likely to be 20%?
  3. If the T-bill rate is 2% the market return is 40% likely to be 5% and 60% likely to be 20%, draw the SML for this economy.
  4. Which stock is undervalued? Which stock is overvalued, why?

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