In: Finance
Consider the following information on Stocks I and II:
State of | Probability of | Rate of Return if State Occurs | |||||||||
Economy | State of Economy | Stock I | Stock II | ||||||||
Recession | .27 | .030 | ? | .22 | |||||||
Normal | .62 | .330 | .14 | ||||||||
Irrational exuberance | .11 | .190 | .42 | ||||||||
The market risk premium is 11.2 percent, and the risk-free rate
is 4.2 percent.
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.)
Stock I | |||
Beta | |||
Standard deviation | % | ||
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.)
Stock II | |||
Beta | |||
Standard deviation | % | ||
Which stock has the most systematic risk?
Stock I | |
Stock II |
Which one has the most unsystematic risk?
Stock I | |
Stock II |
Which stock is “riskier”?
Stock I | |
Stock II |