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Consider non-dividend paying stocks A and B. The current stock prices in time 0 are $45 for A and $32 for B. The stock prices
Consider non-dividend paying stocks A and B. The current stock prices in time 0 are $45 for A and $32 for B. The stock prices two years from now depend on the state of economy as follows: Stock price in two years Boom Recession stock 80 40 stock B 30 40 What is the 2-year risk-free interest rate per annum? (a) 4.48% (b) 7.25% (c) 14.38% (d) 14.50%
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