Question: In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. The jury came back today with its decision. The rate of return on

In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. The jury came back today with its decision. The rate of return on Apex was rA = 3.2%. The rate of return on Bpex was only rB = 2.6%. The market today responded to very encouraging news about the unemployment rate, and rM = 3%. The historical relationship between returns on these stocks and the market portfolio has been estimated from index model regressions as:

Apex: rA = 0.2% + 1.5rM

Bpex: rB = 0.1% + 0.7rM

a. What is the predicted returns for Apex & Bpex?

b. Which company do you think won the lawsuit?

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