edProblem 13-26 Systematic versus Unsystematic Risk [LO3]Consider the following information about Stocks I and II:Rate of Return if StateOccursProbability of State ofState of EconomyRecessionEconomyStock I.26.05Stock II-.31Normal.50.22.11Irrational exuberance.24.05.51The market risk premium is 5 percent, and the risk-free rate is 3 percent. (Do not roundintermediate calculations. Enter your standard deviation answers as a percentrounded to 2 decimal places, e.g., 32.16. Round your beta answers to 2 decimalplaces, e.g., 32.16.)The standard deviation on Stock I's return isdeviation on Stock II's return isesstock's systematic risk/beta, Stockpercent, and the Stock I beta isThe standardpercent, and the Stock II beta isTherefore, based on theis "riskier".

Economic conditionProbability =PStock I return =R1Expected Return Stock 1=P*R1Mean Return Stock…

Answered: ed Problem 13-26 Systematic versus…

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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8 Consider the following information on Stocks I and II: State of Economy Recession Normal Irrational exuberance a. Beta Standard deviation Probability of State of Economy .28 .63 .09 b. Beta The market risk premium is 11.3 percent, and the risk-free rate is 4.3 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"? Rate of Return if State Occurs Stock I Stock II Standard deviation c. Most systematic risk d. Most unsystematic risk e. "Riskier" stock .035 .335 .195 % -.23 .15 .43 %
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