Based on the following information Calculate State of...
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Accounting
Based on the following information Calculate
State of Economy
Probability of State of Economy
Rate of Return if State Occurs
Stock A
Stock B
Recession
0.25
0.05
-0.17
Normal
0.45
0.08
0.12
Boom
0.30
0.13
0.29
a) The expected return of Stock A
b) The expected return of Stock B
c) The expected return of Portfolio where you invest $15,000 in Stock A and $25,000 in Stock B
d) Suppose Stock A has a beta of 0.8 and Stock B has a beta of 1.2. If you invest $15,000 in Stock A and $25,000 in Stock B, what is the beta of this portfolio?
e) Expected return on the market (RM ) is 12% and the risk-free (rf) is 3%. What must the expected return on the portfolio according to CAPM? (Use the beta you have calculated in section d) for CAPM)
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