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

r_{A} = 3.1 % .

The rate of return on Bpex was only

r_{B} = 2.5 % .

The market today responded to very encouraging news about the unemployment rate, and

r_{M} = 3 % .

The historical relationship between returns on these stocks and the market portfolio has been estimated from index model regressions as:

Apex:

r_{A} = 0.2 % + 1.4 r_{M}

Bpex:

r_{B} = - 0.1 % + 0.6 r_{M}

Required:

.

What is the predicted returns for Apex & Bpex?

.

Which company do you think won the lawsuit?

In a recent closely contested lawsuit, Apex sued Bpex for patent

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