Question
27. SML [LO4] Suppose you observe the following situation: State of Economy Probability of State Return if State Occurs Stock A Stock B Bust 0.15
27. SML [LO4] Suppose you observe the following situation:
| State of Economy | Probability of State | Return if State Occurs Stock A Stock B |
| Bust | 0.15 | -0.08 -0.05 |
| Normal | 0.70 | 0.13 0.14 |
| Boom | 0.15 | 0.48 0.29 |
Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? What is the risk-free rate?
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Small Brewery Finance
Authors: Maria Pearman
1st Edition
1938469526, 978-1938469527
