32. In one year the economy will either be weak, normal, or strong with probabilities of .3, .35, and .35 respectively. Security W pays $100 if the economy is weak, security N pays $100 if the economy is normal, and security S pays $100 if the economy is strong. The current prices of these securities are as follows: W = $40, N = $30, S = $25. What is the risk free rate of interest?

a. 2.2% b. 5% c. 5.263% d. 9.783% e. 11.111%

33. In one year the economy will either be weak, normal, or strong with probabilities of .3, .35, and .35 respectively. Security W pays $100 if the economy is weak, security N pays $100 if the economy is normal, and security S pays $100 if the economy is strong. The current prices of these securities are as follows: W = $40, N = $30, S = $25. What is the expected return on the Market Index (M) that pays $800, $1000 or $1200 depending on whether the economy is weak, normal or strong respectively?

a. 2.2% b. 5% c. 5.263% d. 9.783% e. 11.111%