40% QUESTION 2 (20 Marks) a) Esther wishes to invest in a company that operates within the mining sector and is aware that the returns from such investments can be volatile. A consultant has provided her with forecasts of different states of the economy and the return that could be obtained given each state. Use the information below to determine the average expected return and risk associated with this investment. Probability Return Boom 0.1000 Good 0.2000 30% OK 0.3000 15% Level 0.2000 2% Slump 0.2000 -12% 110 Marks) b) Let's assume that the current risk-free rate is 12%. Let's also assume that we expect the return on the GSE Composite Index to be 30%. i. What is the market risk premium (2 Marks) ii. How much should asset A offer if its beta is 0.8? (2 Marks) iii. How much should asset B offer if its beta is 1.4? (2 Marks) iv. How much should asset Coffer if its beta is 1? (2 Marks) 1. What is the beta of the risk-free asset? (2 Marks)