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Suppose you observe the following situation: State of Economy Bust Normal Boom Probability of State of Economy 0.22 0.48 0.30 Rate of Return if State

Suppose you observe the following situation: State of Economy Bust Normal Boom Probability of State of Economy 0.22 0.48 0.30 Rate of Return if State Occurs Stock A Stock B -0.12 -0.27 0.10 0.05 0.23 0.28 Assume the capital asset pricing model holds and stock A's beta is greater than stock B's beta by 0.4. What is the expected market risk premium? A. 8.8 percent B. 9.5 percent C. 10.5 percent D. 12.9 percent

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