There is a 2810 probability of a below average economy and


1. There is a 28.10% probability of a below average economy and a 71.90% probability of an average economy. If there is a below average economy stocks A and B will have returns of -7.40% and 18.50%, respectively. If there is an average economy stocks A and B will have returns of 11.50% and -0.80%, respectively. Compute the:

a) Expected Return for Stock A :

b) Expected Return for Stock B :

c) Standard Deviation for Stock A:

d) Standard Deviation for Stock B :

2. The market risk premium for next period is 4.70% and the risk-free rate is 1.00%. Stock Z has a beta of 0.64 and an expected return of 14.50%. What is the:

a) Market's reward-to-risk ratio?

b) Stock Z's reward-to-risk ratio?

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Financial Management: There is a 2810 probability of a below average economy and
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