Problem:
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 .030? 34 Normal .59 .340 .26 Irrational exuberance .17 .200 .44 the market risk premium is 11.4 percent, and the risk-free rate is 4.4 percent.
Required:
Part 1:
Question 1: Calculate the beta and standard deviation of Stock I.
Question 2: Calculate the beta and standard deviation of Stock II.
Part 2:
Question 1: Which stock has the most systematic risk?
Question 2: Which one has the most unsystematic risk?
Note: Can someone please give me a step by step solution?