Reference no: EM132771163

Problem 1: In the CAPM, the stock market risk premium is equal to the:

A. Stock market expected return minus the Treasury bill interest rate

B. Stock market expected risk minus the risk-free rate

C. Individual stock's expected return minus the stock market risk-free rate

D. Individual stock's expected return minus the Treasury bill interest rate

Problem 2: The stock of Sugar High is expected to produce the following returns given various states of the economy. What is the expected return on this stock?

A. 7.33% = (-6% + 11% + 17%) / 3

B. 9.68% = 88% x 11% since normal is the most likely next year

C. 11.26% = [ (2% x -6%) + (88% x 11%) + (10% x 17%) ]

D. 11.50% = [ (2% x 6%) + (88% x 11%) + (10% x 17%) ]