Question: Expected return on two stocks for two particular market returns: Please show all work. Market Return Aggressive Stock Defensive Stock 5% 1% 8% 20% 25%

  1. Expected return on two stocks for two particular market returns: Please show all work.

Market Return Aggressive Stock Defensive Stock

5% 1% 8%

20% 25% 18%

  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 5% or 20%?
  3. If the T-bill rate is 3% and the market return is equally likely to be 5% or 20%, draw the SML for this economy.
  4. Between aggressive and defensive stocks, which one is undervalued, which is overvalued, and why?

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