Question
Consider the following information regarding Stocks A & B: Rate of return if State Occurs State of the Economy Probability of State of the Economy
Consider the following information regarding Stocks A & B:
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| Rate of return if State Occurs | |
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|
| ||
| State of the Economy | Probability of State of the Economy | Stock A | Stock B |
| Boom | 8% | -8% | 13% |
| Normal | 35% | 2% | 7% |
| Slow | 40% | 9% | 3% |
| Recession | 17% | 14% | -2% |
Assume the Market Risk Premium is 6% and the Risk-Free Rate is 3%. Assume the stocks are correctly priced. Describe the risk borne by each stock (systematic & total)
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School Finance Elections
Authors: Don E. Lifto, Bradford J. Senden, Daniel A. Domenech
2nd Edition
1607091488, 978-1607091486
