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 | .45 | .03 | -.19 |
| Normal | .25 | .35 | .14 |
| Irrational exuberance | .30 | .29 | .45 |
The market risk premium is 12 percent and the risk-free rate is 6 percent.
a. What is the beta of each stock? Which stock has the most systematic risk?
b. What is the standard deviation of each stock?
c. Which one has the most unsystematic risk? Explain your reasoning.
d. Which stock is riskier? Why?
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Surviving In General Management
Authors: Philip Berman, Pauline Fielding
1st Edition
9780333483145
