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Let the risk-free rate be 4%. Consider a financial market M. Suppose the economy has two scenarios: boom or bust. The returns in each scenario
Let the risk-free rate be 4%. Consider a financial market M. Suppose the economy has two scenarios: boom or bust. The returns in each scenario for the market portfolio M and a stock A that is traded in Mare given in the following table: Rates of return and states Scenario Market Portfolio M Stock A Boom -8% -10% Bust 32% 38% If each scenario is equally likely, answer the following questions: (1) List, in general from what you have learned in this course, 4 ways to compute the expected rate of return on a stock. (Hint: No need for computations or elaborations here). (2) From your answer in part (1), find the expected rate of return on stock A in two different ways
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