Question
Problem. Consider the following information on Stocks 1 and 2 : State of economy Probability of state return return stock1 stock2 Recession 0.25 0.04 -0.22
Problem. Consider the following information on Stocks 1 and 2 :
| State of economy | Probability of state | return | return |
| stock1 | stock2 | ||
| Recession | 0.25 | 0.04 | -0.22 |
| Normal | 0.60 | 0.22 | 0.15 |
| Boom | 0.15 | 0.16 | 0.45 |
The market risk premium is 7%, and the risk-free rate is 4%. Which stock has more systematic risk?
Which one has more unsystematic risk? Which stock is 'riskier' ? Explain.
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Financial Markets And Institutions
Authors: Anthony Saunders, Marcia Cornett
4th Edition
0077262379, 978-0077262372
