Question
Rate of Return if State Occurs State of Economy Probability of State of Economy Stock A Stock B Recession 0.20 0.06 -0.19 Normal 0.50 0.08
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| Rate of Return if State Occurs | |
| State of Economy | Probability of State of Economy | Stock A | Stock B |
| Recession | 0.20 | 0.06 | -0.19 |
| Normal | 0.50 | 0.08 | 0.16 |
| Boom | 0.30 | 0.16 | 0.34 |
a. What is the expected return on Stock A?
b. What is the standard deviation of return on Stock B?
c. Which is riskier?
d If investors become more risk averse, what will happen to the price of stocks in general? Why?
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Advanced Financial Risk Management Enterprise Wide Risk Management In Theory And Practice
Authors: Donald Van Deventer, Kenji Imai, Mark Mesler
3rd Edition
1547416157, 9781547416158
