Question
An investor is analyzing the risk two stocks A and B within three expected states of the economy. If a boom economy occurs, stock A
An investor is analyzing the risk two stocks A and B within three expected states of the economy. If a boom economy occurs, stock A will provide an 8% return, while stock B will provide a 10% return; if an average economy transpires, stock A will provide a 5 return, while stock B will provide a 5% return; if a bust economy transpires, stock A will provide a -11% return and stock B will provide a -15% return. It is expected that there will be a 60% probability of an average return. Boom and Bust states have an equal chance of occurring. Determine which stock is riskier given the state information.
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