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You are given this information on stock D & E
| State of economy | Probability of state of economy | Rate of return if state occurs (stock D) | Rate of return if state occurs (stock E) |
| Recession | 25.00% | 2.00% | -20.00% |
| Normal | 60.00% | 32.00% | 12.00% |
| Boom | 15.00% | 18.00% | 40.00% |
Market risk premium 7.00%
Risk-free rate 4.00%
Calculate the following for stocks D & E
| | Stock D | Stock E |
| Expected return | | |
| Beta | | |
| Variance | | |
| Standard deviation | | |
Answer the following questions
| Which stock has the more total risk? | Stock D or E? |
| Which stock has the more systematic risk? | Stock D or E? |
| Which stock has higher risk premium? | Stock D or E ? |
Explain you answers above what is meant by total risk, systematic risk, and risk premium?
Please use excel formulas to solve this, thank you.
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