Reference no: EM131931203

After some study of the economy, your forecast for next year is that a boom economy has a 30% chance of occurring, a neutral economy 50%, and a bust economy a 20% chance of occurring. You also estimate that a certain stock would have a return of 33% in a boom economy next year, 21% in a neutral economy , and -11% in a bust economy. The risk-free rate is 4.5%. What is the expected risk premium for this stock next year? (Answer to the nearest tenth of a percent, but do not use a percent sign).

Probability

Return

Boom Economy

30%

33%

Neutral Economy

50%

21%

Bust Economy

20%

-11%

Risk-Free Rate = 4.5%