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Suppose you observe the following situation: Rate of Return If State Occurs State of Probability of Economy State Stock A Stock B Bust .15 .14 .12 Normal .60 .07 .07 Boom .25 .42 .22 a. Calculate the expected return on each stock. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Expected return Stock A % Stock B % b. Assuming the capital asset pricing model holds and Stock A's beta is greater than Stock B's beta by .65, what is the expected market risk premium? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Expected market risk premium %

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Financial Management, Finance

Category:- Financial Management
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