State of Economy Probability of State of Economy Rate of Return if State Occurs ...
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Accounting
| State of Economy | Probability of State of Economy | Rate of Return if State Occurs | |
| Stock 1 | Stock 2 | ||
| Recession | .25 | .02 | -.33 |
| Normal | .45 | .30 | .13 |
| Irrational Exuberance | .30 | .08 | .53 |
The market risk premium is 8 percent, and the risk-free rate is 5 percent.
A. What is the standard deviation for both stocks?
B. What is the beta for both stocks?
C. Which stock is riskier?
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