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Consider the following information on three stocks: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock...

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Question

Finance

Consider the following information on three stocks:

State of

Economy

Probability of

State of Economy

Rate of Return

if State Occurs

Stock A

Stock B

Stock C

Boom

.25

.27

.15

.11

Normal

.65

.14

.11

.09

Bust

.10

?.19

?.04

.05

A portfolio is invested 45 percent each in Stock A and Stock Band 10 percent in Stock C. What is the expected risk premium on theportfolio if the expected T-bill rate is 4.1 percent?

A.

8.71 percent

B.

7.81 percent

C.

12.74 percent

D.

11.47 percent

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Transcribed Image Text

Consider the following information on three stocks:State ofEconomyProbability ofState of EconomyRate of Returnif State OccursStock AStock BStock CBoom.25.27.15.11Normal.65.14.11.09Bust.10?.19?.04.05A portfolio is invested 45 percent each in Stock A and Stock Band 10 percent in Stock C. What is the expected risk premium on theportfolio if the expected T-bill rate is 4.1 percent?A.8.71 percentB.7.81 percentC.12.74 percentD.11.47 percent

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