1. If the economy booms, RTF, Inc., stock is expected to return 13 percent. If the economy goes into a recessionary period, then RTF is expected to only return 4 percent. The probability of a boom is 80 percent while the probability of a recession is 20 percent. What is the variance of the returns on RTF, Inc., stock?
.000778
.001296
.056000
.001037
.036000c
2. The common stock of Flavorful Teas has an expected return of 17.75 percent. The return on the market is 13 percent and the risk-free rate of return is 3.5 percent. What is the beta of this stock?
.67
4.10
.75
1.37
1.50