1. There is a 28.10% probability of a below average economy and a 71.90% probability of an average economy. If there is a below average economy stocks A and B will have returns of -7.40% and 18.50%, respectively. If there is an average economy stocks A and B will have returns of 11.50% and -0.80%, respectively. Compute the:
a) Expected Return for Stock A :
b) Expected Return for Stock B :
c) Standard Deviation for Stock A:
d) Standard Deviation for Stock B :
2. The market risk premium for next period is 4.70% and the risk-free rate is 1.00%. Stock Z has a beta of 0.64 and an expected return of 14.50%. What is the:
a) Market's reward-to-risk ratio?
b) Stock Z's reward-to-risk ratio?