Consider the following information on Stocks I and II:
State of Probability of Rate of Return if State Occurs
Economy State of Economy Stock I Stock II
Recession .21 .015 ? .31
Normal .56 .325 .23
Irrational exuberance .23 .185 .41
The market risk premium is 11.1 percent, and the risk-free rate is 4.1 percent.
Calculate the beta and standard deviation of Stock I. (Do not round intermediate calculations. Enter the standard deviation as a percent and round both answers to 2 decimal places, e.g., 32.16.)
Stock I
Beta
Standard deviation %
Calculate the beta and standard deviation of Stock II. (Do not round intermediate calculations. Enter the standard deviation as a percent and round both answers to 2 decimal places, e.g., 32.16.)
Stock II
Beta
Standard deviation %
Which stock has the most systematic risk?
Stock I
Stock II
Which one has the most unsystematic risk?
Stock I
Stock II
Which stock is “riskier”?
Stock I
Stock II