Task:
Consider the following information about Stock I and II:
State of Probability of Rate of Return if State Occurs
Economy State of Economy Stock I Stock II
Recession 0.14 -0.15 -0.15
Normal 0.12 0.29 0.43
Irrational ex- 0.74 0.29 0.27
uberance
The market risk premium is 8%, and risk-free rate is 2.8%.
1. What is the standard deviation percent on stock I's expected return and the stock beta?
2. what is the standard deviation percent on stock II's expected return and the stock beta?
3. Which stock I or stock II is "riskier"?
For standard deviation and beta: round answer to 2 decimal places. (eg:32.16)