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 Stock A Scenario Bust Boom Market -8% 27 -10% 41 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 If each scenario is equally likely, find the expected rate of return on the market portfolio and on each stock. (Enter your answers as a whole percent.) Expected Rate of Return % Market portfolio Stock A 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 Stock A Scenario Bust Boom Market -8% 27 -10% 41 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 If each scenario is equally likely, find the expected rate of return on the market portfolio and on each stock. (Enter your answers as a whole percent.) Expected Rate of Return % Market portfolio Stock A Stock D
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 25P
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Question
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.
Rate of Return
Aggressive Defensive
Stock D
-6%
20
Stock A
Scenario
Bust
Boom
Market
-8%
27
-10%
41
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
If each scenario is equally likely, find the expected rate of return on the market portfolio and on each stock. (Enter your
answers as a whole percent.)
Expected Rate
of Return
%
Market portfolio
Stock A
Stock D
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