Question: 1 Question 1 There are two stocks A and B, whose market prices are given by PA = 50 and pB = 75. Suppose returns

1 Question 1 There are two stocks A and B, whose

1 Question 1 There are two stocks A and B, whose market prices are given by PA = 50 and pB = 75. Suppose returns are described by the following single factor model without idiosyncratic risk and consider the following parameters: Mn-10% per annum; rf = 3% p.a.; A-2; and B = 1.5 1. Are the risk premia of asset A and B higher or lower than the market premium? why? if 2. What prices for the two stocks do you expect one year from today given the CAPM holds? and assume the CAPM holds. they are higher(lower) under which conditions they would be lower(higher)

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