Question: The following table provides a security analyst's expected return on two stocks in two particular scenarios for the market return. State Probability Market return %

The following table provides a security analyst's expected return on two stocks in two particular scenarios for the market return.

State Probability Market return % Stock A return % Stock B return %
Poor 0.25 4 5.5 3.8
Good 0.75 15 33 12.6

What is the value of the risk free rate in the above economy?

a.

3%

b.

2.5%

c.

3.5%

d.

2%

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