Which one of the following stocks is correctly priced if the risk-free rate of return is 3.7 percent and the market risk premium is 8.8 percent? Use INFORMATION O.

• A. A
• B. B
• C. C
• D. D
• E. E

State of Economy Information V Probability of State of Economy Returns if State Occurs Stock II Boom Normal Wow 0.06 0.69 0.25 Stock I 0.15 0.35 0.43 -0.35 0.35 0.45 State of Economy Information B Probability of State of Economy 0.30 0.65 0.05 Boom Normal Recession Rate of Return if State Occurs 0.15 0.12 0.06 State of Economy Information K Probability of State of Economy Returns if State Occurs Stock R Boom Normal 0.10 0.90 Stock Q 0.14 0.08 0.16 0.11 Information O Beta 0.64 0.97 Stock A B D E Expected Return 0.0947 0.1203 0.1444 0.1580 0.1837 1.22 1.37 1.68