Consider the following information about Stock I and II. The market risk premium is 8...
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Consider the following information about Stock I and II. The market risk premium is 8 percent, and the risk-free rate is 4 percent. Answer Question (18) - (20). State of Economy Recession Normal Irrational exuberance Probability of State of Rate of Return if State Occurs Economy Stock I Stock II 0.25 0.11 -0.40 0.50 0.29 0.10 0.25 0.13 0.56 (18) What is the expected return of Stock I? (A) 20.50% (B) 33.96% (C) 8.53% (D) 7.28% (19) What is the standard deviation of Stock I and II? (A) 8.53%; 33.96% (B) 8.53%; 7.28% (C) 9.03%; 33.96% (D) 11.53%; 33.96% (20) Which of the following is correct? (A) The expected return of Stock I is lower (B) The systematic risk of Stock II is higher (C) The total risk of Stock II is higher (D) The unsystematic risk of Stock II is lower
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