Question
Consider the following information on Stocks I and II: Rate of Return if State Occurs State of Economy Probability of State of Economy Stock I
Consider the following information on Stocks I and II:
| Rate of Return if State Occurs | |||
| State of Economy | Probability of State of Economy | Stock I | Stock II |
| Recession | .25 | .03 | -.20 |
| Normal | .25 | .36 | .14 |
| Irrational exuberance | .50 | .30 | .46 |
The market risk premium is 13 percent and the risk-free rate is 6 percent.
a-1. What is the beta of each stock? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
a-2. Which stock has the most systematic risk?
b-1. What is the standard deviation of each stock? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
b-2. Which one has the most unsystematic risk?
c. Which stock is riskier?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Intermediate Accounting Volume 1
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy
12th Canadian edition
119-49633-5, 1119496497, 1119496330, 978-1119496496
