Homework answers / question archive / Consider the following table, which gives a security analyst’s expected return on two stocks in two particular scenarios for the rate of return on the market:   Market Return Aggressive Stock Defensive Stock 4 % –2 % 3 % 24   34   12       a

Consider the following table, which gives a security analyst’s expected return on two stocks in two particular scenarios for the rate of return on the market:   Market Return Aggressive Stock Defensive Stock 4 % –2 % 3 % 24   34   12       a

Finance

Share With

---

Consider the following table, which gives a security analyst’s expected return on two stocks in two particular scenarios for the rate of return on the market:

 

Market Return		Aggressive Stock		Defensive Stock
4	%	–2	%	3	%
24		34		12

 

a. What are the betas of the two stocks? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

 

b. What is the expected rate of return on each stock if the two scenarios for the market return are equally likely to be 4% or 24%? (Do not round intermediate calculations. Round your answers to 1 decimal place.)

 

e. What hurdle rate should be used by the management of the aggressive firm for a project with the risk characteristics of the defensive firm’s stock if the two scenarios for the market return are equally likely? Also, assume a T-Bill rate of 3%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)