1. Calculate the expected return, variance, and standard deviation for the follo

1. Calculate the expected return, variance, and standard deviation for the following stock:
Economic
Conditions Prob. Return
Strong 25% 32.0%
Normal 35% 10.0%
Weak 40% -16.0%
2. Expected return on two stocks for two particular market returns:
Market Return Aggressive Stock Defensive Stock
4% -5% 6%
20% 30% 10%
a. What are the betas of the two stocks?
b. What is the expected rate of return on each stock if the market return is 40% likely to be 4% and 60% likely to be 20%?
c. If the T-bill rate is 5% and the market return is 40% likely to be 4% and 60% likely to be 20%, draw the SML for this economy.
d. Between aggressive and defensive stocks, which one is undervalued, which is overvalued, and why?