2.

Suppose you observe the following situation:

State of Economy	Probability of State	Return if State Occurs
Stock A	Stock B
Bust	.17	.06	.07
Normal	.72	.15	.16
Boom	.11	.50	.31

Required:

(a)	Calculate the expected return on each stock.(Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimalplaces(e.g., 32.16).)

	Expected return
Stock A	%
Stock B	%

(b)	Assuming the capital asset pricing model holds and stock As beta is greater than stock Bs beta by .27, what is the expected market risk premium?(Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimalplaces(e.g., 32.16).)

Market risk premium

%