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Consider the following information about Stocks I and II: Rate of Return If State Occurs State of Probability of Economy State of Economy Stock I
Consider the following information about Stocks I and II: |
Rate of Return If State Occurs | |||||||||
State of | Probability of | ||||||||
Economy | State of Economy | Stock I | Stock II | ||||||
Recession | .26 | .06 | .21 | ||||||
Normal | .51 | .18 | .08 | ||||||
Irrational exuberance | .23 | .07 | .41 | ||||||
The market risk premium is 5 percent, and the risk-free rate is 4 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 II's return is percent, and the Stock II beta is . Therefore, based on the stock's systematic risk/beta, Stock (Click to select) II I is "riskier". |
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