A rates of return of asset and market have the following distribution: Steady of Economy Probability Stock A Stock B Market Return Boom 0.3 20% 15% 15% Normal 0.4 5 5% 9 Recession 0.3 12 -10% 18 Correlation Coefficient with market   -0.3 0.3     Calculate the standard deviation of return for the stock A,B and market. Calculate Beta Coefficient of stock A and B. Calculate the required rate of return of stock A & B, if you know the risk-free return 6% and market return represents expected return of market.

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A:

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A: Probability recession = p1 = 0.17Probability normal = p2 = 0.62Probability boom = p3 = 0.21Stock A…

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