Consider the following information on stocks I and II: State of probability of Rate of Return if state Occurs state of Econ. Stock I Stock II 0.20 0.06 0.55 0.47 0.25 0.23 The market risk premium is 8%, and the risk free rate is 6%. Economy Recession Normal Boom a) Which stock has the most Systematic risk? b) Which one has the most unsystematic risk? c) Which stock is "riskier"? Explain. -0.25 0.11 0.68

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
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QUESTION 1
Consider the following information on stocks I and II:
State of
probability of
Rate of Return if state Occurs
state of Econ.
Stock I
Stock II
0.20
0.06
0.55
0.47
0.25
0.23
The market risk premium is 8%, and the risk free rate is 6%.
Economy
Recession
Normal
Boom
a) Which stock has the most Systematic risk?
b) Which one has the most unsystematic risk?
c) Which stock is "riskier"? Explain.
-0.25
0.11
0.68
Transcribed Image Text:QUESTION 1 Consider the following information on stocks I and II: State of probability of Rate of Return if state Occurs state of Econ. Stock I Stock II 0.20 0.06 0.55 0.47 0.25 0.23 The market risk premium is 8%, and the risk free rate is 6%. Economy Recession Normal Boom a) Which stock has the most Systematic risk? b) Which one has the most unsystematic risk? c) Which stock is "riskier"? Explain. -0.25 0.11 0.68
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