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4. Given the following probability distributions for stocks A and B: State Bust Probability of Occurrence Return on A 5% 25% Return on B 0.4
4. Given the following probability distributions for stocks A and B: State Bust Probability of Occurrence Return on A 5% 25% Return on B 0.4 0.6 10% -10% (a) Compute the correlation coefficient of these two stocks. (b) Assume that the inflation rate and risk free rate are, respectively, 4% and 6%, compute the expected (nominal) rate of return, expected real rate of return, and REAL risk premium of an equally-weighted portfolio composing of these two stocks (b) Assume that the inflation rate and risk free rate are, respectively, 4% and 6%, compute the expected (nominal) rate of return, expected real rate of return, and REAL risk premium of an equally-weighted portfolio composing of these two stocks
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