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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 −8% −10% −6% Boom 27 41 20 a. Find the beta of each stock. (Round your answers to 2 decimal places.) Beta Stock A 1.63 Stock D .75 b. 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 percent rounded to 2 decimal places.) Expected Rate of Return Market portfolio % Stock A % Stock D % c. If the T-bill rate is 5%, what does the CAPM say about the fair expected rate of return on the two stocks? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Expected Rate of Return Stock A % Stock D %

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