Financial Return and Risk

1. Assume that the risk-free rate is 5.9 percent, and that the market risk premium is 6.0 percent. If a stock has a required rate of return of 16.0 percent, what is its beta?

2.An analyst has estimated how a particular stocks return will vary depending on what will happen to the economy. If a Recession economy occurs (.1 probability), expected return is -60%. If a Below Average economy occurs (.2 probability), expected return is -10%. If an Average economy occurs (.4 probability), expected return is 15%. If an Above Average economy occurs (.2 probability), expected return is 40%. If a Boom economy occurs (.1 probability), expected return is 70%.  What is the expected return and standard deviation on the companys stock?

 

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