Problem $13-28$ SML $($LO$1,4)$

Suppose you observe the following situation:

$\backslash$table$[[$State of Economy,Probability of$,$Rate of Return if State Occurs,$],[$Recession$,$State,Stock A$,$Stock B$],[$Normal$,0\mathrm{.}35,-0\mathrm{.}05,-0\mathrm{.}03],[$Irrational exuberance,$0\mathrm{.}55,0\mathrm{.}16,0\mathrm{.}16]]$

a$.$ Calculate the expected return on each stock. $($Round the final answers to $2$ decimal places.$)$

$\backslash$table$[[,$Expected Return$],[$Stock A$,,],[$Stock B$,,]]$

b$.$ Assuming the capital asset pricing model holds and stock A$\text{'}$s beta is greater than stock B$\text{'}$s beta by $0\mathrm{.}25,$ what is the expected market risk premium? $($Do not round intermediate calculations. Round the final answer to $2$ decimal places.$)$

Expected market risk premium $1\%$