There is a 30 percent probability that a particular stock will earn a 17 percent return and a 70 percent probability that it will earn 11 percent.What is the risk-free rate if the risk premium on the stock is 8.60 percent?
A)4.20 percent
B)4.80 percent
C)5.20 percent
D)5.40 percent
E)5.80 percent

Question

Quizplus · Accepted Answer

E(R) = (.30 × 17) + (.70 × 11) = 12.80Risk premium = 12.80 - 8.6 = 4.20 percent

There Is a 30 Percent Probability That a Particular Stock