Question
In: Finance
Consider the following information about Stocks I and II: State of Economy Probability of state of...
Consider the following information about Stocks I and II:
| State of Economy | Probability of state of economy | Stock 1 | Stock 2 |
| Recession | 0.28 | 0.05 | -0.20 |
| Normal | 0.53 | 0.17 | 0.07 |
| Irrational Exuberance | 0.19 | 0.06 | 0.40 |
The market risk premium is 8 percent, and the risk-free rate is 2 percent.
The standard deviation on Stock 1's return is ________ percent, and the Stock 1 beta is _________. The standard deviation on Stock 2's return is ________ percent, and the Stock 2 beta is _________. Therefor, based on the stock's systematic risk/beta, Stock ______ is "riskier"
Solutions
Expert Solution
Calculate the standard deviation and Beta as follows:
Formulas:
jeff jeffy answered 2 years agoRelated Solutions
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...
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
.21
.040
−.36
Normal
.61
.350
.28
Irrational exuberance
.18
.210
.46
The market risk premium is 11.6 percent, and the
risk-free rate is 4.6 percent.
a.
Calculate the beta and standard deviation of Stock I.
(Do not round intermediate calculations. Enter the standard
deviation as a percent and...
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
.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.
a.
Calculate the beta and standard deviation of Stock I.
(Do not round intermediate calculations. Enter the standard
deviation as a percent and...
consider the following information about three stocks: state of economy. probability of state of &
consider the following information about three
stocks:
state of economy. probability of state
of
economy
boom.
0.20
normal.
0.55
bust.
0.25
rate of return if state occurs
stock
A.
Stock
B.
stock C
0.38.
0.50.
0.50
0.16.
0.14.
0.12
0.00.
-0.30.
-0.50
a-1. if your portfolio is invested 30%each in A and B
and 40% in C, what is the portfolio expected return?
a-2. what is the variance?
a-3. what is the standard deviation?
b. if the expected T-bill...
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
.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...
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...
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