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. Rate of Return Aggressive Defensive Stock D -6% 20 Scenario Bust Market -8% 27 Stock A -10% 41 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 5%, 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. (Round your answers to 2 decimal places.) Beta Stock A 1.20 Stock D
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. Rate of Return Aggressive Defensive Stock D -6% 20 Scenario Bust Market -8% 27 Stock A -10% 41 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 5%, 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. (Round your answers to 2 decimal places.) Beta Stock A 1.20 Stock D
Chapter6: Risk And Return
Section: Chapter Questions
Problem 1Q
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