The risk-free rate is 2.20%. What is the expected risk premium on this stock given the following information?
$\begin{array}{lrr}
\text { State of the Economy } & \text { Probability } & \text { Rate of Return if } \
& \text { of State of Economy } & \text { State occurs }\
\text { Boom } & .35 & 18 \% \
\text { Normal } & .65 & 98
\end{array}$
A)9.25%
B)9.75%
C)9.95%
D)10.16%
E)12.15%

Question

Quizplus · Accepted Answer

The expected return is calculated as (0.35 * 18%) + (0.65 * 9%) = 12.15%. The risk premium is the expected return minus the risk-free rate: 12.15% - 2.20% = 9.95%.

The Risk-Free Rate Is 2 A)925% B)9

The Risk-Free Rate Is 2 A)925%
B)9