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a) Assuming the capital asset pricing model holds, and the sum of stock As and Bs betas equals 2.2. What is the expected market risk
a) Assuming the capital asset pricing model holds, and the sum of stock As and Bs betas equals 2.2. What is the expected market risk premium if the risk-free rate is 1.6%?
b) Assume another stock named stock C exists. Using the following relationship between the betas of stocks A, B, and C, calculate the expected return on Stock C. C=(2A+3B)5
Rate of Return if State Occurs State of Probability Economy of State Stock A Stock B Recession 0.30 -0.08 -0.08 Normal ? 0.14 0.16 Irrational exuberance 0.20 0.45 0.30
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