Question
Suppose you observe the following situation: State of Economy Probability of State Return if State Occurs Stock A Stock B Boom .15 .05 .08 Normal
Suppose you observe the following situation: State of Economy Probability of State Return if State Occurs Stock A Stock B Boom .15 .05 .08 Normal .70 .16 .17 Bust .15 .48 .29
| Suppose you observe the following situation: |
| State of Economy | Probability of State | Return if State Occurs | |
| Stock A | Stock B | ||
| Boom | .15 | .05 | .08 |
| Normal | .70 | .16 | .17 |
| Bust | .15 | .48 | .29 |
| a. | Calculate the expected return on each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| b. | Assuming the capital asset pricing model holds and Stock As beta is greater than Stock Bs beta by .35, what is the expected market risk premium? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
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Asset Allocation Strategies For Mutual Funds Evaluating Performance Risk And Return
Authors: Giuseppe Galloppo
1st Edition
3030761274,3030761282
