Consider the following information on Stocks I and II: Probability of State of Rate of Return if State Occurs State of Economy Economy Stock I Stock II Recession Normal 0.30 8.03 -0.30 Irrational exuberance 0.30 0.40 8.37 0.31 8.14 0.47 The market risk premium is 8 percent and the risk-free rate is 40.5 percent. a-1. What is the beta of each stock? Note: Do not round Intermediate calculations. Round your answers to 2 decimal places. Stock I Stock I Beta a-2. Which stock has the most systematic risk? ○ Stock I ○ Stock Il b-1. What is the standard deviation of each stock? Note: Do not round Intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Standard Deviation Stock I Stock I % b-2. Which one has the most unsystematic risk? ○ Stock I ○ Stock Il c. Which stock is "riskier"? ○ Stock I ○ Stock Il

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
Question
Consider the following information on Stocks I and II:
Probability of State of
Rate of Return if State Occurs
State of Economy
Economy
Stock I
Stock II
Recession
Normal
0.30
8.03
-0.30
Irrational
exuberance
0.30
0.40
8.37
0.31
8.14
0.47
The market risk premium is 8 percent and the risk-free rate is 40.5 percent.
a-1. What is the beta of each stock?
Note: Do not round Intermediate calculations. Round your answers to 2 decimal places.
Stock I
Stock I
Beta
a-2. Which stock has the most systematic risk?
○ Stock I
○ Stock Il
b-1. What is the standard deviation of each stock?
Note: Do not round Intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.
Standard Deviation
Stock I
Stock I
%
b-2. Which one has the most unsystematic risk?
○ Stock I
○ Stock Il
c. Which stock is "riskier"?
○ Stock I
○ Stock Il
Transcribed Image Text:Consider the following information on Stocks I and II: Probability of State of Rate of Return if State Occurs State of Economy Economy Stock I Stock II Recession Normal 0.30 8.03 -0.30 Irrational exuberance 0.30 0.40 8.37 0.31 8.14 0.47 The market risk premium is 8 percent and the risk-free rate is 40.5 percent. a-1. What is the beta of each stock? Note: Do not round Intermediate calculations. Round your answers to 2 decimal places. Stock I Stock I Beta a-2. Which stock has the most systematic risk? ○ Stock I ○ Stock Il b-1. What is the standard deviation of each stock? Note: Do not round Intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Standard Deviation Stock I Stock I % b-2. Which one has the most unsystematic risk? ○ Stock I ○ Stock Il c. Which stock is "riskier"? ○ Stock I ○ Stock Il
Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Similar questions
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education