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Question 2 You are given the following information about Stock 1 and Stock 2. Rate of Return if State Occurs State of Probability of Economy State of Economy Stock 1 Stock 2 Recession Normal Boom 0.25 0.5 0.25 0.11 0.29 0.13 -0.4 0.10 0.56 The market risk premium is 8% and the risk-free rate is 4%. (a) Use an appropriate tool to help you work out the following. (1) Calculate the expected returns of Stock 1 and Stock 2. (ii) Appraise which stock has the higher systematic risk. (iii) Compute the total risk of each stock market. (iv) Appraise which stock is riskier