Question $2(1$ point$)$

Assume that there is a $31\%$ chance that the market return next year will be $5\mathrm{.}00\%.$ The market can also return $1\mathrm{.}50\%$ or $12\mathrm{.}50\%,$ both of which are equally likely $($i$.$e$.,$ the probability of either outcome is $[1-31\%]/2).$ Assume the risk$-$free rate is $2\mathrm{.}00\%.$ If a firm's beta is $1\mathrm{.}38,$ what is its expected return on equity next year?

Instructions: Round the result to two decimal places and do not put the $"\%"$ symbol in the answer box. For example if you get a result of $3\mathrm{.}0492\%$ then write $3\mathrm{.}05$ in the answer box below.

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