Consider the following table, which gives a security analyst\'s expected return
ID: 2772117 • 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 7% 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 7% or 20%, what are the alphas of the two stocks? (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)
Explanation / Answer
What are the betas of the two stocks?
What is the expected rate of return on each stock if the market return is equally likely to be 7% or 20%?
i f the T-bill rate is 7%, and the market return is equally likely to be 7% or 20%, what are the alphas of the two stocks?
Market Expected return =.50(20+7) =13.5%
BetaA =(3.2-31)/(7-20)=2.14 Beta D=(5-14)/(7-20)=.69