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

rate of return (%) scenario

scenario

bust: market -7 / aggressive stock a -9 / defensive stock d -5

boom: market 28 / aggressive stock a 35 / defensive stock d 20

a) find the beta of each stock. in what way is stock d defensive?

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 4%, what does the capm say about the fair expected rate of return on the two stocks?

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

Suppose that the u. s. dollars-mexican pesos exchange rate is fixed by the u. s. and mexican governments. assume also that labor is mobile between the united states and mexico due to low transportation costs. which of the following situations is likely to happen as a result of a simultaneous increase in the demand for u. s. goods and decrease in the demand for mexican goods? (pick mexican unemployment rate increases, and the country undergoes bad economic times for a sustained u. s. unemployment rate increases, and the country undergoes bad economic times for a sustained mexican unemployment rate rises at first, but it soon drops as unemployed mexicans move to the united states for mexican unemployment rate rises at first, but then it drops as mexican pesos depreciate against u. s. dollars.