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9. Consider the following information on Stocks I and II: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock
9.
Consider the following information on Stocks I and II: |
State of Economy | Probability of State of Economy | Rate of Return if State Occurs | |
Stock I | Stock II | ||
Recession | .21 | .050 | .26 |
Normal | .66 | .350 | .18 |
Irrational exuberance | .13 | .210 | .46 |
The market risk premium is 11.6 percent, and the risk-free rate is 4.6 percent. |
Requirement 1: |
(a) | Calculate the beta and standard deviation of Stock I.(Do not round intermediate calculations. Enter the standard deviation as a percentage. Round your answers to 2 decimal places (e.g., 32.16).) |
Stock I | |
Beta | |
Standard deviation | % |
(b) | Calculate the beta and standard deviation of Stock II.(Do not round intermediate calculations. Enter the standard deviation as a percentage. Round your answers to 2 decimal places (e.g., 32.16).) |
Stock II | |
Beta | |
Standard deviation | % |
Requirement 2: |
(a) | Which stock has the most systematic risk? |
(Click to select)Stock IStock II |
(b) | Which one has the most unsystematic risk? |
(Click to select)Stock IIStock I |
(c) | Which stock is riskier? |
(Click to select)Stock IIStock I |
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