Consider the following table, which gives a security analyst\'s expected return

Question

Consider the following table, which gives a security analyst's expected return on two stocks for two particular market returns:

What are the betas of the two stocks? (Round your answers to 2 decimal places.)

What is the expected rate of return on each stock if the market return is equally likely to be 8% or 20%? (Round your answers to 2 decimal places.)

If the T-bill rate is 7%, and the market return is equally likely to be 8% or 20%, 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. Do not round intermediate calculations. Round your answers to 2 decimal places.)

Consider the following table, which gives a security analyst's expected return on two stocks for two particular market returns:

Explanation / Answer

(a) The beta is the sensitivity of the stock return to the market return movements. Let A be the

aggressive stock and D be the defensive one. Then beta is the change in the stock return per

change in the market return. Therefore, we compute each stock

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