Problem 9-9

Consider the following table, which gives a security analyst's expected return on two stocks for two particular market returns:

Market Return	Aggressive Stock	Defensive Stock
5%	3%	3%
23	37	10

a.	What are the betas of the two stocks? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

	Beta
Aggressive Stock	2.22
Defensive Stock	0.38

b.	What is the expected rate of return on each stock if the market return is equally likely to be 5% or 23%? (Do not round intermediate calculations. Round your answers to 1 decimal place. Omit the "%" sign in your response.)

	Expected Rate of Return
Aggressive Stock	17%
Defensive Stock	6.5%

e.

What hurdle rate should be used by the management of the aggressive firm for a project with the risk characteristics of the defensive firms stock if market return is equally likely to be 5% or 23%? Also, assume a T-Bill rate of 3%. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Hurdle rate

%