Answered step by step
Verified Expert Solution
Question
00
1 Approved Answer
Problem 12-19 Consider the following information on Stocks I and II: Rate of Return If State Occurs Probability of State of Economy State of Economy
Problem 12-19
| 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 | .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. |
| 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? | ||||
|
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