Question: Consider the following information about Stocks I…
| Consider the following information about stocks I and II |
Rate of return for stock 1 and 2
| State of economy | Probability of state of economy | Stock 1 | Stock 2 |
| Recession | .30 | .10 | -.25 |
| Normal | .40 | .17 | .12 |
| Irrational exuberance | .30 | .11 | .45 |
The market risk premium is 8 percent, and the risk-free rate is 3 percent. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16. Enter your return answers as a percent.)
The standard deviation on stock I’S RETURN IS? Percent, and the stock I beta is? The standard deviation on stock ll’s return? Percent, and the stock ll beta is? Therefore, based on the stock’s systematic risk/beta, stock one of two is “riskier”.
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