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What is the expected market risk premium

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Reference no: EM131298165

Suppose you observed the following situation?

                                                                                                                             Return if state occurs

Sate of Economy                                Posibility of state of economy                  Stock A       Stock B

Bust                                                                      .10                                            -.12              -.05

Nornal                                                                   .65                                              .09               .10

Boom                                                                    .25                                              .35                .21?

A. Calculate the expected return of each stock

B. Assuming the capital asset pricing models holds and stock A's beta is greater than stock B's beta by .25, what is the expected market risk premium?

Reference no: EM131298165

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