Suppose you observe the following situation: Rate of Return if State Occurs State of Probability...
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Accounting
Suppose you observe the following situation: Rate of Return if State Occurs State of Probability of Economy State Stock A Stock B Bust 20 -15 -13 Normal .65 06 .06 Boom .15 41 21 a. Calculate the expected return on each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Assuming the capital asset pricing model holds and Stock A's beta is greater than Stock B's beta by .45, what is the expected market risk premium? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. a. Stock A Stock B Expected market risk premium 7.05 4.45 b. 12.00 x %
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