Consider the following information on Stocks I and II: Rate of Return if State Occurs State of
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Question:
Consider the following information on Stocks I and II:
Rate of Return if State Occurs | |||
---|---|---|---|
State of Economy | Probability of State of Economy | Stock I | Stock II |
Recession | .20 | .045 | -.25 |
Normal | .65 | .345 | .17 |
Irrational exuberance | .15 | .205 | .45 |
The market risk premium is 11.5 percent, and the risk-free rate is 4.5 percent.
a) Calculate the beta and standard deviation of Stock I.
b) Calculate the beta and standard deviation of Stock II.
Related Book For
Corporate Finance Core Principles and Applications
ISBN: 978-1259289903
5th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
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