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1. Suppose security C pays $800 if the economy is weak and $200 if the economy is strong. Risk free rate is 5% and the

1. Suppose security C pays $800 if the economy is weak and $200 if the economy is strong. Risk free rate is 5% and the market index security (MIS) pays $800 and $1400 is the economy is weak and strong, correspondingly. MIS is priced at $950

a) What is the expected return of security C?

b) What is the risk premium of security C?

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