Consider the following table, which gives a security analyst\'s expected return
ID: 2705578 • Letter: C
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