QUESTION 26

After some study of the economy, your forecast for next year is that a boom economy has a 30% chance of occurring, a neutral economy 50%, and a bust economy a 20% chance of occurring. You also estimate that a certain stock would have a return of 32% in a boom economy next year, 21% in a neutral economy , and -10% in a bust economy. The risk-free rate is 4.4%. What is the expected risk premium for this stock next year? (Answer to the nearest tenth of a percent, but do not use a percent sign).

	Probability	Return
Boom Economy	30%	32%
Neutral Economy	50%	21%
Bust Economy	20%	-10%

Risk-Free Rate = 4.4%