Suppose you observe the following situation:

Rate of Return if State OccursProbability ofState of EconomyStateStock AStock BRecession0.200.080.06Normal0.600.130.13Irrational exuberance0.200.480.28

a.Calculate the expected return on each stock.(Round the final answers to 2 decimal places.)

Expected returnStock 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 answers to 2 decimal places.)

Expected market risk premium%

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