(Suggested time:15 minutes; Difficulty level: Easy) (10 marks) Suppose you observe the following situation: Rate of Return if State Occurs State of Economy Probability of State Stock A Stock B Recession 0.30 -0.08 -0.08 Normal ? 0.16 0.18 Irrational exuberance 0.20 0.40 0.25 Required: 1. (6 marks) Assuming the capital asset pricing model holds, and the sum of stock A's and B's betas equals 2.2. What is the expected market risk premium if the risk-free rate is 1.6%? 2.(4 marks) Assume another stock named stock C exists. Using the following relationship between the betas of stocks A, B, and C, calculate the expected return on Stock C. Bc = (28A+388)