Problem 12-14 Expected Returns (LO2) 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 Bust Market -8% 32 Rate of Return Aggressive Stock A -10% 38 Defensive Stock D -6% 24 Boom Required: a. Find the beta of each stock. b. If each scenario is equally likely, find the expected rate of return on the market portfolio and on each stock. c. If the T-bill rate is 4%, what does the CAPM say about the fair expected rate of return on the two stocks? d. Which stock seems to be a better buy on the basis of your answers to (a) through (c)? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Find the beta of each stock. Note: Round your answers to 2 decimal places. Stock A Stock D Beta Required A Required B Required C Required D If each scenario is equally likely, find the expected rate of return on the market portfolio and on each stock. Note: Enter your answers as a whole percent. Expected Rate of Return Market portfolio % Stock A % Stock D % < Required A Required C > Required A Required B Required C Required D If the T-bill rate is 4%, what does the CAPM say about the fair expected rate of return on the two stocks? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Stock A Stock D Expected Rate of Return % % Required A Required B Required C Required D Which stock seems to be a better buy on the basis of your answers to (a) through (c)? Better buy < Required C Required D >