The following table shows estimates of the risk of two well-known Canadian stocks: Standard Deviation (%)R2raise to the power of 2BetaStandard Error of BetaSun Life Financial25.70.190.930.12Suncor Energy26.50.020.700.27What proportion of each stock’s risk was market risk, and what proportion was specific risk?What is the variance of the returns for Sun Life Financial stock? What is the specific variance?What is the confidence interval on Suncor’s beta?If the CAPM is correct, what is the expected return on Sun Life? Assume a risk-free interest rate of 4% and an expected market return of 14%.Suppose that next year, the market provides a 14% return. Knowing this, what return would you expect from Sun Life?

"As the question posted contains multiple sub parts. According to the guidelines first three sub parts will be answered. If you want all the question sub parts to be answered, kindly repost the same again separately."Risk:Risk refers to the uncertainty or variability of returns associated with an investment or asset. It represents the potential for losses or gains that can occur when investing in a particular security or portfolio of securities.In finance, risk can be categorized into two main types: systematic risk (market risk) and unsystematic risk (specific risk).Systematic risk, also known as market risk, is the risk that is inherent in the overall market or economy. It cannot be eliminated through diversification because it affects all investments in the market.Unsystematic risk, also known as specific risk or idiosyncratic risk, is the risk that is specific to a particular company or industry. It can be reduced or eliminated through diversification by holding a diversified portfolio of assets.Variance:Variance is a statistical measure that quantifies the dispersion or spread of a set of data points relative to their mean or average. In the context of finance and investment, variance is used to measure the volatility or risk associated with an investment's returns.Specifically, the variance of an investment's returns measures how much the actual returns of the investment deviate from their expected or average returns. A higher variance indicates greater volatility and, therefore, higher risk.Variance is calculated as the average of the squared differences between each data point and the mean. In the context of investment returns, it represents the average squared deviation of returns from their average.In summary, risk in investing is associated with the potential for losses or deviations from expected returns, while variance is a statistical measure used to quantify the spread or volatility of investment returns, which can help assess and measure that risk.Computation of Risk Proportions, Variance, and Confidence Interval Using Excel:Formula Table:Calculation Table:1) The market risk portion of Sunlife is 2.4880 and Suncor is 0.13955.. The stock risk ratio for Sunlife is -1.48801 and Suncor is 0.860448.2) The variance of returns for Sunlife Financial is 0.066049 and as the stock risk portion is negative specific variance risk is not applicable.3) The Confidence Interval for Suncor Energy is the upper bound of 0.1708 and the lower bound is 1.2292.

Answered: What proportion of each stock’s risk…

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

See similar textbooks

	Standard Deviation (%)	R^{2raise to the power of 2}	Beta	Standard Error of Beta
Sun Life Financial	25.7	0.19	0.93	0.12
Suncor Energy	26.5	0.02	0.70	0.27

Similar questions

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

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…

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

SEE MORE TEXTBOOKS

What proportion of each stock’s risk was market risk, and what proportion was specific risk? What is the variance of the returns for Sun Life Financial stock? What is the specific variance? What is the confidence interval on Suncor’s beta?