What is difference between the expected returns of stocks

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Reference no: EM131500264

Over the previous year you observed that a certain company's stock price had a return of 18.1%. During that same year the risk-free rate was 4.8%, and the Market Risk Premium was 7.5%. What would be your estimate of that company's beta?

Assume the economy can only be in two states. It can either be booming or in recession. The probability that the economy will boom is 46%. You are considering investing in either Stock A or Stock B. If the economy booms, then the return of Stock A would be -5.8%, and the return of Stock B would be 6.6%. In a recession, the return of Stock A would be -8.5% and the return of Stock B would be 7.1%. What is the difference between the expected returns of these stocks? Your answer must be the result of the expected return of Stock A minus the expected return of Stock B. ANSWER IS: -14.13. Just need help solving.

Reference no: EM131500264

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