Consider the following information:
State of
Economy
Probability of
State of Economy
Rate of Return
if State Occurs
Stock A
Stock B
Recession
.04
.097
.102
Normal
.72
.114
.133
Boom
.24
.156
.148
The market...
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Finance
Consider the following information:
State of Economy
Probability of State of Economy
Rate of Return if State Occurs
Stock A
Stock B
Recession
.04
.097
.102
Normal
.72
.114
.133
Boom
.24
.156
.148
The market risk premium is 7.4 percent, and the risk-free rate is3.1 percent. The beta of Stock A is ________ and the beta of StockB is ________.
a) 1.25; 1.41
b) 1.47; 1.76
c) 1.21; 1.76
d) 1.25; 1.89
e) 1.47; 1.41
Answer & Explanation
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3.8 Ratings (748 Votes)
Option A is correct First we will calculate the expected return and then we will use the CAPM equation to find the required beta of both stocks The formula for expected return is
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