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Standard deviation and expected return with probability

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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%.

a. What is the standard deviation percent on stock I's expected return and the stock beta?
b. what is the standard deviation percent on stock II's expected return and the stock beta?
c. Which stock I or stock II is "riskier"?

For standard deviation and beta: round answer to 2 decimal places. (eg:32.16)

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Solution Summary

The solution explains the calculation of standard deviation and expected return given the probability and the returns for each state.

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