Consider the following information on Stocks I and II: State of Economy Probability of State of Economy Recession Normal Irrational exuberance .22 .62 .16 Rate of Return if State Occurs Stock I Stock II .045 -.37 .355 .215 .29 .47 The market risk premium is 11.7 percent, and the risk-free rate is 4.7 percent. a. Calculate the beta and standard deviation of Stock I. Note: 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. Note: 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 1.94 % %

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
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Consider the following information on Stocks I and II:
Probability of
State of Economy State of Economy
Rate of Return if State Occurs
Stock I
Stock II
Recession
.22
.045
-.37
Normal
.62
.355
.29
Irrational
.16
exuberance
.215
.47
The market risk premium is 11.7 percent, and the risk-free rate is 4.7 percent.
a. Calculate the beta and standard deviation of Stock I.
Note: 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.
Note: 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
1.94
%
%
Transcribed Image Text:Consider the following information on Stocks I and II: Probability of State of Economy State of Economy Rate of Return if State Occurs Stock I Stock II Recession .22 .045 -.37 Normal .62 .355 .29 Irrational .16 exuberance .215 .47 The market risk premium is 11.7 percent, and the risk-free rate is 4.7 percent. a. Calculate the beta and standard deviation of Stock I. Note: 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. Note: 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 1.94 % %
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