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Roenfeld Corp believes the following probability distribution exists for its stock. State of Probability of State Stock's Expected the Economy Occurring Return Boom 0.45 25%
Roenfeld Corp believes the following probability distribution exists for its stock. State of Probability of State Stock's Expected the Economy Occurring Return Boom 0.45 25% Normal 0.50 15% Recession 0.05 5% a). What is the expected return and variance on the above stock? (4 marks) b). If the stock has beta 1.2, market expected return is 15% and risk-free rate is 5%, what is the required return of the above stock? (3 marks) c). Is this stock overpriced or underpriced? Explain
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