Calculate the expected return on each stock

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Problem 11-36 SML Suppose you observe the following situation: Return if State Occurs State of Probability of Economy State Stock A Stock B Bust .15 − .10 − .08 Normal .60 .09 .08 Boom .25 .32 .26 a. Calculate the expected return on each stock. (Do not round intermediate calculations. Round your answers 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 .25, what is the expected market risk premium? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) Expected market risk premium %

Reference no: EM13878603

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