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Consider the following information on Stocks I and II: RATE OF RETURN IF STATE OCCURS STATE OF ECONOMY PROBABILITY OF STATE OF ECONOMY STOCK I

Consider the following information on Stocks I and II: RATE OF RETURN IF STATE OCCURS STATE OF ECONOMY PROBABILITY OF STATE OF ECONOMY STOCK I STOCK II Recession State of economy=0.09 Stock I= -0.15 Stock II= -0.25

Normal 0.20 0.19 0.27

Irrational exuberance 0.71 0.27 0.31

The market risk premium is 11 percent, and the risk-free rate is 5.5 percent. For standard deviations: (Do not include the percent signs (%). Round your answers to 2 decimal places. (e.g., 32.16)) For betas: (Round your answers to 2 decimal places. (e.g., 32.16)) The standard deviation on Stock I's expected return is percent, and the Stock I beta is . The standard deviation on Stock II's expected return is percent, and the Stock II beta is . Therefore, based on the stocks' systematic risk/beta, Stock I or II is "riskier".

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