(Answered) In a recent closely contested lawsuit apex sued bpex for

Finance

In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. The jury came back today with its decision. The rate of return on Apex was r_A = 3.5%. The rate of return on Bpex was only r_B = 2.9%. The market today responded to very encouraging news about the unemployment rate, and r_M = 3.2%. The historical relationship between returns on these stocks and the market portfolio has been estimated from index model regressions as:

Apex: r_A = 0.4% + 1.1r_M

Bpex: r_B = -0.1% + 0.5r_M

a. What is the predicted returns for Apex & Bpex

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