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 | .35 | .03 | -.23 |
| Normal | .30 | .39 | .14 |
| Irrational exuberance | .35 | .33 | .49 |
The market risk premium is 10 percent and the risk free rate is 4.5 percent.
a. What is the beta of each stock?
b. What is the standard deviation of each stock?
C. Which stock has the most systematic risk?
d. Which stock has the most unsystematic risk?
e. Which stock is riskier?
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International Finance Theory And Policy
Authors: Paul Krugman, Maurice Obstfeld, Marc Melitz
12th Global Edition
1292417005, 978-1292417004
