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Question 22) Suppose you have estimated the following returns for stocks of Bank of America and Citigroup in three possible states of the economy. State
| Question 22) | Suppose you have estimated the following returns for stocks of Bank of America and Citigroup in three possible states of the economy. | ||||||
| State of Economy | Probability of State of Economy | Expected Return if State Occurs | |||||
| Bank of America | Citigroup | ||||||
| Boom | 30% | 17% | 12% | ||||
| Normal | 60% | 5% | 7% | ||||
| Recession | -2% | 5% | |||||
| Part A) | What are the expected returns? | ||||||
| (3 points) | |||||||
| Expected Return | |||||||
| Bank Of America Stock | |||||||
| Citigroup Stock | |||||||
| Part B) | If the risk-free rate is 4.15%, what is the risk premium for each stock? | ||||||
| (3 points) | |||||||
| Risk-Premium | |||||||
| Bank Of America Stock | |||||||
| Citigroup Stock | |||||||
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Overcoming Debt Achieving Financial Freedom
Authors: Cindy Zuniga-Sanchez
1st Edition
1119902320, 978-1119902324
