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Consider a stock and a bond with the following risks. For simplicity the risk free rate is rf=0. This problem involves calculations of several steps.
Consider a stock and a bond with the following risks. For simplicity the risk free rate is rf=0. This problem involves calculations of several steps. Make sure you keep enough digits in the intermediate steps so that the final answers would not be subjected to rounding error Scenario Probability Return on Bond Return on Stock Very Good 0.2 5% 15% Good 0.3 -5% 10% Neutral 0.3 5% 0% Bad 0.2 0% -5% 1. What is the expected return of the stock? A. 0% OB.5% C. 10% D. 15%
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