Question: Consider the following Asset data: State Probability Asset A (60%) Asset B (40%) Boom 1/3 25% 1% Normal 1/3 5% 5% Recession 1/3 -5% 12%

Consider the following Asset data: State Probability Asset A (60%) Asset

Consider the following Asset data: State Probability Asset A (60%) Asset B (40%) Boom 1/3 25% 1% Normal 1/3 5% 5% Recession 1/3 -5% 12% E(RA)= 8.33% E(RB) = 6% St. Dev A= 12.47% St. Dev B = 4.55% Consider a portfolio comprised of 60% Asset A and 40% Asset B. Assume that the correlation between the 2 assets is -0.94, and the beta on the portfolio is 1.1. Suppose the return on the market portfolio is 7%. What is the market risk premium? [Choose closest] A. 0.4% B. 3% C.4% D. 4.4%

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