ECON 4721, Money & Banking

Reference: Modeling Monetary Economics (2016, Fourth Edition, Cambridge University Press) by Bruce Champ, Scott Freeman and Joseph Haslag.

Suppose capital is risky and pays gross rate of return 1.09,1.08 and 1.02 with probabilities 0.3, 0.4 and 0.3. A risk-free asset pays a safe gross real rate of return of 1.00. What is the risk premium of capital? Your answer must have 2 decimal places, round it to the closest number.