Consider the following information on Stocks I and II Rate of Return If State Occurs Probability of State of Economy State of Economy Stock I Stock II Recession 35 05 16 Normal 40 21 14 Irrational exuberance 25 15 21 The market risk premium is 10 percent, and the risk free rate is 5 percent What is the standard deviation of each stock I and II

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Consider the following information on Stocks I and II: Rate of Return If State Occurs Probability of State of Economy State of Economy Stock I

Consider the following information on Stocks I and II:

		Rate of Return If State Occurs
	Probability of
State of Economy	State of Economy	Stock I	Stock II
Recession	.35	.05	-.16
Normal	.40	.21	.14
Irrational exuberance	.25	.15	.21

The market risk premium is 10 percent, and the risk-free rate is 5 percent.

What is the standard deviation of each stock I and II?

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