Consider the following information on Stocks I and II:

State of Economy	Probability of State of Economy	Rate of Return if State Occurs
		Stock I	Stock II
Recession	.24	.065	.29
Normal	.69	.365	.21
Irrational exuberance	.07	.225	.49

The market risk premium is 11.9 percent, and the risk-free rate is 4.9 percent.

Requirement 1:

(a)	Calculate the beta and standard deviation of Stock I. (Do not round intermediate calculations. Enter the standard deviation as a percentage. Round your answers to 2 decimal places (e.g., 32.16).)

	Stock I
Beta
Standard deviation		%

(b)	Calculate the beta and standard deviation of Stock II. (Do not round intermediate calculations. Enter the standard deviation as a percentage. Round your answers to 2 decimal places (e.g., 32.16).)

	Stock II
Beta
Standard deviation		%

Requirement 2:

(a)	Which stock has the most systematic risk?

(Click to select)Stock IIStock I

(b)	Which one has the most unsystematic risk?

(Click to select)Stock IIStock I

(c)	Which stock is riskier?

(Click to select)Stock IStock II

References

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