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 Boom Market -7% 19 Rate of Return Aggressive Stock A -10% 25 Defensive Stock D -5% 15 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)? > Answer is complete but not entirely correct. 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. Beta Stock A Stock D 3.31 x 1.54

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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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
Boom
Market
-7%
19
Rate of Return
Aggressive Stock A
-10%
25
Defensive Stock D
-5%
15
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)?
> Answer is complete but not entirely correct.
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.
Beta
Stock A
Stock D
3.31 x
1.54
Transcribed Image Text: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 Boom Market -7% 19 Rate of Return Aggressive Stock A -10% 25 Defensive Stock D -5% 15 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)? > Answer is complete but not entirely correct. 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. Beta Stock A Stock D 3.31 x 1.54
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