Consider the following table, which gives a security analyst's expected return on two stocks and the market index in two scenarios:DefensiveStock5.5%14Scenario Probability Market Return10.50.52Beta ABeta DRequired:a. What are the betas of the two stocks? (Round your answers to 2 decimal places.)Rate of return on ARate of return on D7%20b. What is the expected rate of return on each stock? (Round your answers to 2 decimal places.)Alpha A%AggressiveStock3.7%30%%c. If the T-bill rate is 8%, what are the alphas of the two stocks? (Negative values should be indicated by a minus sign. Do not roundintermediate calculations. Round your answers to 2 decimal places.)

Answer - Part A - Calculation of betas of the two stocks : Beta A = Difference in Rate of Return…

Consider the following table, which gives a security analyst's expected return on two stocks and the market index in two scenarios: Scenario Probability Market Return 1 0.5 0.5 2 Beta A Beta D Rate of return on A Rate of return on D 7% Required: a. What are the betas of the two stocks? (Round your answers to 2 decimal places.) 20 Alpha A b. What is the expected rate of return on each stock? (Round your answers to 2 decimal places.) % Aggressive Stock 3.7% 30 Defensive Stock 5.5% 14 % % c. If the T-bill rate is 8%, 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.)

Consider the following table, which gives a security analyst's expected return on two stocks and the market index in two scenarios: Scenario Probability Market Return 1 0.5 0.5 2 Beta A Beta D Rate of return on A Rate of return on D 7% Required: a. What are the betas of the two stocks? (Round your answers to 2 decimal places.) 20 Alpha A b. What is the expected rate of return on each stock? (Round your answers to 2 decimal places.) % Aggressive Stock 3.7% 30 Defensive Stock 5.5% 14 % % c. If the T-bill rate is 8%, 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.)

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter6: Risk And Return

Section: Chapter Questions

Problem 14P

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