Question: Question 2 \ Based On The Following Information In The Table Below: State Of Economy Probability Of Of Economy Rate Of Return If State Occurs

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Question 2 \

based on the following information in the table below:

State of economy

Probability of of economy

Rate of return if state occurs

Stock A

STOCK B

Recession

0.15

0.09

- 0.30

Normal

0.70

0.42

0.12

Boom

0.15

0.26

0.44

The market risk premium is 10 per cent, and the risk-free rate is 4 per cent.

Compute the beta (A) and standard deviation of stock A.

Compute the beta (B) and standard deviation of stock B.

Which security is riskier? Explain