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1. You have estimated the following probability distributions of expected future returns for stocks A and B Stock A Return Stock B Probability Probability Return
1. You have estimated the following probability distributions of expected future returns for stocks A and B Stock A Return Stock B Probability Probability Return 0.1 -10% 0.2 2% 0.2 10% 0.2 7% 0.4 15% 0.3 12% 0.2 20% 0.2 15% 0.1 40% 0.1 165 (25 points) a. What is the expected return of stock A? b. What is the expected return of stock B? (25 points) 2. Given a risk-free rate (Rf) of 6 percent and a market risk premium (Rm - Rf) of 8 percent, calculate the required rate of return on each of the following stocks: a. American Electric Power (B =0.65) b. Citigroup (B = 2.05) c. General Mills (B = 0.50) d. Wynn Resorts (B = 1.80) e. JPMorgan Chase B = 1.25)
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