Problem 2 You are given the following information about Stocks A and E Rate of Return if State Occurs Probabilitv of State of Econom 0.25 0.50 0.25 State of Economy Stock A Stock B Boom Normal Recession 18% 6% -5% 20% 15% 2% Stock A has a beta of 0.325 and Stock B has a beta of 1.000. Assuming that neither of these stocks is over or undervalued a) b) c) What is the market risk premium and risk-free rate? What would be the beta of a portfolio consisting of 40% of Stock A and 60% of Stock B? What would be the expected return of the portfolio under b)