State of Economy Recession Normal Irrational exuberance Probability of State of Economy .20 .60 .20 Rate of Return if State Occurs The standard deviation on Stock I's return is deviation on Stock Il's return is stock's systematic risk/beta, Stock Stock I .04 .26 10 Stock II -.35 15 55 The market risk premium is 5 percent, and the risk-free rate is 4 percent. (Do not round intermediate calculations. Enter your standard deviation answers as a percent rounded to 2 decimal places, e.g., 32.16. Round your beta answers to 2 decimal places, e.g., 32.16.) percent, and the Stock I beta is percent, and the Stock Il beta is is "riskier" The standard Therefore, based on the

The market risk premlum is 5 percent, and the risk-free rate is 4 percent. (Do not round intermediate calculations. Enter your standard deviation answers as a percent rounded to 2 decimol places, e.g., 32.16. Round your beto onswers to 2 decimal places, e.g., 32.16.)