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Homework answers / question archive / Consider the following information on Stocks I and II: Rate of Return if State Occurs Economy Probability of State of Economy Stock I Stock II Recession

Consider the following information on Stocks I and II: Rate of Return if State Occurs Economy Probability of State of Economy Stock I Stock II Recession

Finance

Consider the following information on Stocks I and II:

Rate of Return if State Occurs

Economy Probability of State of Economy Stock I Stock II

Recession .23 .05 -.38

Normal .63 .36 .3

Irrational Exuberance .14 .22 .48

The market risk premium is 11.8%, and the risk-free rate is 4.8%.

Calculate the beta and standard deviation of Stock I and Stock II

 

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Beta ;

Stock I = 1.87

Stock II = 1.02

 

Standard deviation ;

Stock I = 12.88%

Stock II = 30.61%