4. Consider the following two scenarios for the economy and the expected returns in each scenario for the market portfolio, an aggressive stock A and a defensive stock D.

Required:

a. Find the beta of each stock

b. If each scenario is equally likely, find the expected rate of return on the market portfolio and on each stock.

c. If the T-bill rate is 3%, what does the CAPM say about the fair expected rate of return on the two stocks? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

d. Which stock seems to be a better buy on the basis of your answers to (a) through (c)?