Consider the following information State of economy Probability of state of economy Return rate if state occurs Stock A Stock B Boom 0 75 0 06 0 16 Recession 0 25 0 14 0 02 A What is the expected return on an equally weighted portfolio of these two stocks B What is the variance of stock As return C If stock As beta is 1 5 and risk free rate is 2 What must the market risk premium (MRP) be

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Consider the following information: State of economy Probability of state of economy Return rate if state occurs Stock A Stock B Boom 0.75 0.06 0.16

Consider the following information:

State of economy	Probability of state of economy	Return rate if state occurs
State of economy	Probability of state of economy	Stock A	Stock B
Boom	0.75	0.06	0.16
Recession	0.25	0.14	0.02

A- What is the expected return on an equally weighted portfolio of these two stocks?

B- What is the variance of stock As return?

C- If stock As beta is 1.5 and risk free rate is 2%. What must the market risk premium (MRP) be?

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