You are given the following information about Stock 1 and Stock 2.

		Rate of return if State Occurs
State of economy	Probability of State of Economy	Stock 1	Stock 2
Recession	0.25	0.11	-0.4
Normal	0.5	0.29	0.1
Boom	0.25	0.13	0.56

The market risk premium is 8% and the risk-free rate is 4%.

(a) Use an appropriate computing tool to help you work out the following.

(i) 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.

(iv) Appraise which stock is riskier.

(b) Discuss whether a risky asset can have a negative beta and what the CAPM predicts about its return.