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Consider the following table, which gives a security analyst's expected return on two stocks and the market index in two scenarios: Scenario 1 2 Probability Market Return 0.5 0.5 Beta A Beta D 5% 20 Rate of return on A Rate of return on D Aggressive Stock 2% Required: a. What are the betas of the two stocks? (Round your answers to 2 decimal places.) 32 % % Defensive Stock 3.5% 14 b. What is the expected rate of return on each stock? (Round your answers to 2 decimal places.)

Consider the following table, which gives a security analyst's expected return on two stocks and the market index in two scenarios: Scenario 1 2 Probability Market Return 0.5 0.5 Beta A Beta D 5% 20 Rate of return on A Rate of return on D Aggressive Stock 2% Required: a. What are the betas of the two stocks? (Round your answers to 2 decimal places.) 32 % % Defensive Stock 3.5% 14 b. What is the expected rate of return on each stock? (Round your answers to 2 decimal places.)

EBK CFIN
EBK CFIN
6th Edition
ISBN:9781337671743
Author:BESLEY
Publisher:BESLEY
Chapter8: Risk And Rates Of Return
Section: Chapter Questions
Problem 8PROB
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Subject :- Accounting 

Problem 7-12 (Static) Consider the following table, which gives a security analyst's expected return on two stocks and the market index in two scenarios: Scenario 1 2 Probability Market Return 0.5 0.5 Beta A Beta D 5% 20 Rate of return on A Rate of return on D Aggressive Stock 2% Required: a. What are the betas of the two stocks? (Round your answers to 2 decimal places.) 32 % % Defensive Stock 3.5% 14 b. What is the expected rate of return on each stock? (Round your answers to 2 decimal places.)
Transcribed Image Text:Problem 7-12 (Static) Consider the following table, which gives a security analyst's expected return on two stocks and the market index in two scenarios: Scenario 1 2 Probability Market Return 0.5 0.5 Beta A Beta D 5% 20 Rate of return on A Rate of return on D Aggressive Stock 2% Required: a. What are the betas of the two stocks? (Round your answers to 2 decimal places.) 32 % % Defensive Stock 3.5% 14 b. What is the expected rate of return on each stock? (Round your answers to 2 decimal places.)
c. If the T-bill rate is 8%, what are the alphas of the two stocks? (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Round your answers to 1 decimal place.) Alpha A Alpha D % %
Transcribed Image Text:c. If the T-bill rate is 8%, what are the alphas of the two stocks? (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Round your answers to 1 decimal place.) Alpha A Alpha D % %
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