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Question
Consider the following information:
| State of Economy | Probability of State of Economy | Rate of Return if State Occurs | ||||||
| Stock A | Stock B | |||||||
| Recession | .04 | .097 | .102 | |||||
| Normal | .72 | .114 | .133 | |||||
| Boom | .24 | .156 | .148 | |||||
The market risk premium is 7.4 percent, and the risk-free rate is 3.1 percent. The beta of Stock A is ________ and the beta of Stock B is ________.
A) 1.25; 1.89
B) 1.47; 1.76
C) 1.21; 1.76
D) 1.47; 1.41
E) 1.25; 1.41
Answer
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