Consider the following information on Stocks I and II: Rate of Return if State Occurs Probability of State of State of Economy Economy Stock I Stock II Recession .21 .015 -.31 Normal Irrational exuberance .56 .325 .23 .23 185 .41 The market risk premium is 11.1 percent, and the risk-free rate is 4.1 percent. a. Calculate the beta and standard deviation of Stock I. (Do not round intermediate calculations. Enter the standard deviation as a percent and round both answers to 2 decimal places, e.g., 32.16.) b. Calculate the beta and standard deviation of Stock II. (Do not round intermediate calculations. Enter the standard deviation as a percent and round both answers to 2 decimal places, e.g., 32.16.) c. Which stock has the most systematic risk? d. Which one has the most unsystematic risk? e. Which stock is "riskier"?
Consider the following information on Stocks I and II: Rate of Return if State Occurs Probability of State of State of Economy Economy Stock I Stock II Recession .21 .015 -.31 Normal Irrational exuberance .56 .325 .23 .23 185 .41 The market risk premium is 11.1 percent, and the risk-free rate is 4.1 percent. a. Calculate the beta and standard deviation of Stock I. (Do not round intermediate calculations. Enter the standard deviation as a percent and round both answers to 2 decimal places, e.g., 32.16.) b. Calculate the beta and standard deviation of Stock II. (Do not round intermediate calculations. Enter the standard deviation as a percent and round both answers to 2 decimal places, e.g., 32.16.) c. Which stock has the most systematic risk? d. Which one has the most unsystematic risk? e. Which stock is "riskier"?
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
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Transcribed Image Text:Consider the following information on Stocks I and II:
Rate of Return if State
Occurs
Probability of
State of
State of Economy
Economy
Stock I
Stock Il
Recession
.21
.015
-.31
Normal
Irrational
exuberance
.56
.325
.23
.23
.185
.41
The market risk premium is 11.1 percent, and the risk-free rate is 4.1 percent.
a. Calculate the beta and standard deviation of Stock I. (Do not round intermediate
calculations. Enter the standard deviation as a percent and round both answers to
2 decimal places, e.g., 32.16.)
b. Calculate the beta and standard deviation of Stock II. (Do not round intermediate
calculations. Enter the standard deviation as a percent and round both answers to
2 decimal places, e.g., 32.16.)
c. Which stock has the most systematic risk?
d. Which one has the most unsystematic risk?
e. Which stock is "riskier"?
a.
Beta
Standard deviation
%
b.
Beta
Standard deviation
%
C.
Most systematic risk
d. Most unsystematic risk
e.
"Riskier" stock
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