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Management Studies

Consider the following two scenarios for the economy and the returns in each scenario for the market portfolio, an aggressive stock A, and a defensive stock D. Rate of Return Scenario Market Aggressive Stock A Defensive Stock D Bust -9% -10% -7% Boom 43 50 13 a. Find the beta of each stock. (Round your answers to 2 decimal places.) Beta 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.

(Round your answers to 2 decimal places.) Expected Rate of Return 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? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected Rate of Return 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

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Management Theories, Management Studies

Category:- Management Theories
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