Consider the following table, which gives a security analyst's expected return on two stocks for two particular market returns: Market Return Aggressive Stock Defensive Stock 8% 3.8% 5.0% 20 32 15 a....

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Consider the following table, which gives a security analyst's expected return on two stocks for two particular market returns:



























Market Return

Aggressive Stock

Defensive Stock

8%

3.8%

5.0%

20

32

15












a.


What are the betas of the two stocks?
(Round your answers to 2 decimal places.)




















Beta
A

Beta
D












b.


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.)






















Rate of return on
A

%

Rate of return on
D

%












d.


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.)






















Alpha
A

%

Alpha
D

%





*PLEASE EXPLAIN*


Answered Same DayDec 24, 2021

Answer To: Consider the following table, which gives a security analyst's expected return on two stocks for two...

Robert answered on Dec 24 2021
119 Votes
(a) The beta is the sensitivity of the stock return to the market return movements. Let A be the
(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�s beta by calculating the
difference in its return across the two...
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