ANSWER BOTH QUESTIONS

1) There is a 24.34% probability of a below-average economy and a 75.66% probability of an average economy. If there is a below-average economy. Stocks A and B will have returns of -3.28% and -2.49%, respectively. If there is an average economy. Stocks A and B will have returns of 18.14% and 4.18%, respectively. Compute the following for Stocks A and B:

a) Stock A expected return:

b) stock B expected return:

c) stock A standard Deviation

d) stock B standard Deviation

2) An analyst gathered the following information for a stock and market parameters: stock beta= 0.823; expected return on the market=9.53%; expected return on T-bills=1.31%; current stock price= $9.68; expected stock price in one year=$11.31; expected dividend payment next year= $2.31. Calculate the required return and expected return for this stock:

a) required return.

b) expected return: