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Question 3 (6 points). Suppose you observe the following situation: State of economy Probability of state Return if state occurs Stock A Stock B -0.05
Question 3 (6 points). Suppose you observe the following situation: State of economy Probability of state Return if state occurs Stock A Stock B -0.05 0.12 0.3 Recession Normal Irrational exuberance 0.3 0.5 0.2 -0.1 0.15 0.4 a. Calculate the expected return on each stock. (3 points) b. Assuming the capital asset pricing model holds, and stock A's beta is greater than stock B's beta by 0.2, what is the expected market risk premium? (3 points) 
Question 3 (6 points). Suppose you observe the following situation: State of economy Probability of state Return if state occurs a. Calculate the expected return on each stock. (3 points) b. Assuming the capital asset pricing model holds, and stock A's beta is greater than stock B's beta by 0.2 , what is the expected market risk premium? ( 3 points)
Question 3 (6 points). Suppose you observe the following situation: State of economy Probability of state Return if state occurs Stock A Stock B -0.05 0.12 0.3 Recession Normal Irrational exuberance 0.3 0.5 0.2 -0.1 0.15 0.4 a. Calculate the expected return on each stock. (3 points) b. Assuming the capital asset pricing model holds, and stock A's beta is greater than stock B's beta by 0.2, what is the expected market risk premium? (3 points)
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