Question
Consider the following information on Stocks I and II: Rate of Return If State Occurs Probability of State of Economy State of Economy Stock I
| Consider the following information on Stocks I and II: |
| Rate of Return If State Occurs | |||
| Probability of | |||
| State of Economy | State of Economy | Stock I | Stock II |
| Recession | .40 | .04 | -.21 |
| Normal | .30 | .28 | .14 |
| Irrational exuberance | .30 | .22 | .38 |
| The market risk premium is 11 percent, and the risk-free rate is 4 percent. |
| 1-a. | What is the beta of each stock? (Do not round intermediate calculations. Round your answers to 2 decimal places.) |
| Beta | |
| Stock I | |
| Stock II | |
| 1-b. | Which stock has the most systematic risk? |
|
| 2-a. | What is the standard deviation of each stock? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.) |
| Standard Deviation | |
| Stock I | % |
| Stock II | % |
| 2-b. | Which one has the most unsystematic risk? |
|
| 3. | Which stock is riskier? |
|
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Business Statistics Communicating With Numbers
Authors: Sanjiv Jaggia, Alison Kelly
2nd Edition
0078020557, 978-0078020551
