Question
Suppose you observe the following situation: Probability of Rate of Return if State Occurs State of Economy Recession Normal Irrational exuberance State Stock A
Suppose you observe the following situation: Probability of Rate of Return if State Occurs State of Economy Recession Normal Irrational exuberance State Stock A 0.25 -0.09 0.55 0.12 0.20 0.47 Stock B -0.07 0.12 0.27 a. Calculate the expected return on each stock. (Round the final answers to 2 decimal places.) Expected Return Stock A Stock B % % b. Assuming the capital asset pricing model holds and stock A's beta is greater than stock B's beta by 0.55, what is the expected market risk premium? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Expected market risk premium %
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