Question

In: Finance

Consider the following information on Stocks I and II: State of Probability of Rate of Return...

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

Solutions

Expert Solution


Related Solutions

Consider the following information on Stocks I and II: State of Probability of Rate of Return...
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 .21 .015 ? .31 Normal .56 .325 .23 Irrational exuberance .23 .185 .41 The market risk premium is 11.1 percent, and the risk-free rate is 4.1 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...
Consider the following information on Stocks I and II: State of Probability of Rate of Return...
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 .22 .045 − .37 Normal .62 .355 .29 Irrational exuberance .16 .215 .47 The market risk premium is 11.7 percent, and the risk-free rate is 4.7 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...
Consider the following information on Stocks I and II: Rate of Return If State Occurs Probability...
Consider the following information on Stocks I and II: Rate of Return If State Occurs Probability of   State of Economy State of Economy Stock I Stock II   Recession .35 .03 -.23   Normal .30 .39 .14   Irrational exuberance .35 .33 .49 The market risk premium is 10 percent, and the risk-free rate is 4.5 percent. 1-a. What is the beta of each stock? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Beta   Stock I         Stock II...
Consider the following information on Stocks I and II:    RATE OF RETURN IF STATE OCCURS...
Consider the following information on Stocks I and II:    RATE OF RETURN IF STATE OCCURS   STATE OF   ECONOMY PROBABILITY OF STATE OF ECONOMY STOCK I STOCK II   Recession 0.13                0.15           0.05             Normal 0.14                0.25           0.25             Irrational exuberance 0.73                0.29           0.43           The market risk premium is 11 percent, and the risk-free rate is 6.05 percent. For standard deviations: (Do not include the percent signs (%). Round your answers to 2 decimal...
Consider the following information about Stocks I and II: Rate of Return if State Occurs   State...
Consider the following information about Stocks I and II: Rate of Return if State Occurs   State of Probability of   Economy State of Economy Stock I Stock II   Recession .26 .05 − .31   Normal .50 .22 .11   Irrational exuberance .24 .05 .51 The market risk premium is 5 percent, and the risk-free rate is 3 percent. The standard deviation on Stock I's expected return is______percent, and the Stock I beta is_____.The standard deviation on Stock II's expected return is______percent, and the...
Consider the following information about Stocks I and II: Rate of Return If State Occurs State...
Consider the following information about Stocks I and II: Rate of Return If State Occurs State of Probability of Economy State of Economy Stock I Stock II Recession .30 .04 ?.19 Normal .50 .16 .06 Irrational exuberance .20 .05 .39 The market risk premium is 8 percent, and the risk-free rate is 5 percent. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16. Enter your return answers as a percent. ) The standard deviation on...
Consider the following information about Stocks I and II: Rate of Return If State Occurs State...
Consider the following information about Stocks I and II: Rate of Return If State Occurs State of Probability of Economy State of Economy Stock I Stock II Recession .30 .08 −.27 Normal .45 .19 .14 Irrational exuberance .25 .13 .47 The market risk premium is 8 percent, and the risk-free rate is 6 percent. (Do not round intermediate calculations. Enter your standard deviation answers as a percent rounded to 2 decimal places, e.g., 32.16. Round your beta answers to 2...
Consider the following information on Stocks I and II:   State of Economy Probability of State of...
Consider the following information on Stocks I and II:   State of Economy Probability of State of Economy Rate of Return if State Occurs Stock I Stock II   Recession .20 .02 −.20           Normal .55 .32 .12           Irrational exuberance .25 .18 .40         The market risk premium is 7 percent, and the risk-free rate is 4 percent. Calculate the beta and standard deviation for both stocks Also include which one has more systematic risk, and which is riskier?
Consider the following information on Stocks I and II: State of Economy Probability of State of...
Consider the following information on Stocks I and II: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock I Stock II Recession .22 .055 −.27 Normal .67 .355 .19 Irrational exuberance .11 .215 .47 The market risk premium is 11.7 percent, and the risk-free rate is 4.7 percent. Requirement 1: (a) Calculate the beta and standard deviation of Stock I. (Do not round intermediate calculations. Enter the standard deviation as a percentage. Round your...
Consider the following information on Stocks I and II: State of Economy Probability of State of...
Consider the following information on Stocks I and II: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock I Stock II Recession .24 .030 −.34 Normal .59 .340 .26 Irrational exuberance .17 .200 .44 The market risk premium is 11.4 percent, and the risk-free rate is 4.4 percent. Requirement 1: (a) Calculate the beta and standard deviation of Stock I. (Do not round intermediate calculations. Enter the standard deviation as a percentage. Round your...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT