Question
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
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 .22 .055 .27 Normal .67 .355 .19 Irrational exuberance .11 .215 .47
The market risk premium is 11.7 percent, and the risk-free rate is 4.7 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 IStock II
(b) Which one has the most unsystematic risk?
(Click to select)Stock IIStock I
(c) Which stock is riskier?
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