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 | .24 | .055 | .39 |
Normal | .64 | .365 | .31 |
Irrational exuberance | .12 | .225 | .49 |
The market risk premium is 11.9 percent, and the risk-free rate is 4.9 percent.
Calculate the beta and standard deviation of Stock I.
Note: Do not round intermediate calculations. Enter the standard deviation as a percent and round both answers to 2 decimal places, e.g., 32.16.
Calculate the beta and standard deviation of Stock II.
Note: Do not round intermediate calculations. Enter the standard deviation as a percent and round both answers to 2 decimal places, e.g., 32.16.
Which stock has the most systematic risk?
Which one has the most unsystematic risk?
Which stock is riskier?
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