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Problem $12-14$ Expected Returns $($LO$2)$

Consider the following two scenarios for the economy and the expected returns in each scenario for the market portfolio, an aggressive stock A$,$ and a defensive stock D$.$

Scenario Rate of Return

Market Aggressive Stock A Defensive Stock D

Bust $8\%10\%6\%$

Boom $274120$

Required:

Find the beta of each stock.

If each scenario is equally likely, find the expected rate of return on the market portfolio and on each stock.

If the T$-$bill rate is $5\%,$ what does the CAPM say about the fair expected rate of return on the two stocks?

Which stock seems to be a better buy on the basis of your answers to $($a$)$ through $($c$)?$