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Suppose the market portfolio is equally likely to increase by 30% or decrease by 10%. Also suppose that the risk-free interest rate is 4%. a. Use the beta of a firm that goes up on average by 43% when the market goes up and goes down by 17% when the market goes down to estimate the expected return of its stock. How does this compare with the stock's actual expected return? b. Use the beta of a firm that goes up on average by 18% when the market goes down and goes down by 22% when the market goes up to estimate the expected return of its stock. How does this compare with the stock's actual expected return? a. Use the beta of a firm that goes up on average by 43% when the market goes up and goes down by 17% when the market goes down to estimate the expected return of its stock. How does this compare with the stock's actual expected return? The beta of the stock is 1.50 . (Round to two decimal places.) The expected return of the market is 10.00 %. (Round to two decimal places.) According to the CAPM, the expected return of the stock should be 13.00 %. (Round to two decimal places.) Does the CAPM hold in this case? Yes. (Select from the drop-down menu.) b. Use the beta of a firm that goes up on average by 18% when the market goes down and goes down by 22% when the market goes up to estimate the expected return of its stock. How does this compare with the stock's actual expected return? The beta of the stock is 1.00. (Round to two decimal places.) The expected return of the stock is %. (Round to two decimal places.)

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