Question: Suppose the market portfolio will increase 30% or decrease 10% with equal probability. Let's also assume that the risk-free rate is 4%. A. To estimate

Suppose the market portfolio will increase 30% or decrease 10% with equal probability. Let's also assume that the risk-free rate is 4%. A. To estimate the expected return on the stock, use the beta of a firm that rises by an average of 43% when the market rises and falls by an average of 17% when the market falls.

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How does this compare to the stock's actual expected return?

B. To estimate the expected return on the stock, use the beta of a firm that averaged 18% when the market fell and 22% when the market rose. How does this compare to the stock's actual expected return?

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