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5. Suppose you observe the following situation: Probability of State State of Economy Bust Normal 0.45 0.40 Boom 0.15 a) Calculate the expected return on

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5. Suppose you observe the following situation: Probability of State State of Economy Bust Normal 0.45 0.40 Boom 0.15 a) Calculate the expected return on each stock. b) Assuming the capital asset pricing model holds and stock A's beta is greater than stock B's beta by 0.25, what is the expected market risk premium? Return if State Occurs Stock A -0.12 0.14 0.38 Stock B -0.09 0.16 0.27

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