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Problem:

Consider the following information on Stocks I and II: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock I Stock II Recession .24 .030? 34 Normal .59 .340 .26 Irrational exuberance .17 .200 .44 the market risk premium is 11.4 percent, and the risk-free rate is 4.4 percent.

Required:

Part 1:

Question 1: Calculate the beta and standard deviation of Stock I.

Question 2: Calculate the beta and standard deviation of Stock II.

Part 2:

Question 1: Which stock has the most systematic risk?

Question 2: Which one has the most unsystematic risk?

Note: Can someone please give me a step by step solution?

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Category:- Basic Finance
Reference No.:- M91174263

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