Rate of Return If State Occurs State of Probability of Economy State of Economy Stock I Stock II

Recession .20 .04 .35 Normal .60 .26 .15 Irrational exuberance .20 .10 .55 The market risk premium is 5 percent, and the risk-free rate is 4 percent. The standard deviation on Stock I's return is _____percent, and the Stock I beta is______ . The standard deviation on Stock II's return is ______percent, and the Stock II beta is ______. Therefore, based on the stock's systematic risk/beta, _______Stock is "riskier".