Market portfolio stock a stock d

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Reference no: EM132564567

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

Scenario Market Stock A Stock D

Bust -9% -11% -6%

Boom 26 34 18

Required:

a. Find the beta of each stock. Stock A Stock D

b. If each scenario is equally likely, find the expected rate of return on the market portfolio and on each stock. Market Portfolio Stock A Stock D

c. If the T-bill rate is 3%, what does the CAPM say about the fair expected rate of return on the two stocks? Stock A Stock D

d. Which stock seems to be a better buy on the basis of your answers to (a) through (c)? Stock A Stock D

Reference no: EM132564567

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