There is a 35 percent probability that a particular stock will earn a 16 percent return and a 65 percent probability that it will earn 10 percent.What is the risk-free rate if the risk premium on the stock is 7.5 percent?
A) 4.20 percent
B) 4.60 percent
C) 5.20 percent
D) 5.40 percent
E) 5.80 percent

Question

Quizplus · Accepted Answer

E(R) = (0.35 × 16) + (0.65 × 10) = 12.10
Risk premium = 12.10 - 7.5 = 4.60 percent

There Is a 35 Percent Probability That a Particular Stock