Consider the following information on Stocks I and II: Rate of Return if State Occurs Probability of State of State of Economy Economy Recession Normal 8.30 8.38 Irrational exuberance 8.48 Stock I 8.03 8.37 8.31 Stock II -8.38 8.14 2.47 The market risk premium is 8 percent and the risk-free rate is 40.5 percent. a-1. What is the beta of each stock? Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Stock I Stock Beta a-2. Which stock has the most systematic risk? ○ Stock I ○ Stock Il b-1. What is the standard deviation of each stock? Note: Do not round Intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Standard Deviation Stock Stock I b-2. Which one has the most unsystematic risk? ○ Stock I O Stock Il c. Which stock is "riskier"? ○ Stock I ○ Stock Il

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
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Consider the following information on Stocks I and II:
Rate of Return if State Occurs
Probability of State of
State of Economy
Economy
Recession
Normal
8.30
8.38
Irrational
exuberance
8.48
Stock I
8.03
8.37
8.31
Stock II
-8.38
8.14
2.47
The market risk premium is 8 percent and the risk-free rate is 40.5 percent.
a-1. What is the beta of each stock?
Note: Do not round intermediate calculations. Round your answers to 2 decimal places.
Stock I
Stock
Beta
a-2. Which stock has the most systematic risk?
○ Stock I
○ Stock Il
b-1. What is the standard deviation of each stock?
Note: Do not round Intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.
Standard Deviation
Stock
Stock I
b-2. Which one has the most unsystematic risk?
○ Stock I
O Stock Il
c. Which stock is "riskier"?
○ Stock I
○ Stock Il
Transcribed Image Text:Consider the following information on Stocks I and II: Rate of Return if State Occurs Probability of State of State of Economy Economy Recession Normal 8.30 8.38 Irrational exuberance 8.48 Stock I 8.03 8.37 8.31 Stock II -8.38 8.14 2.47 The market risk premium is 8 percent and the risk-free rate is 40.5 percent. a-1. What is the beta of each stock? Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Stock I Stock Beta a-2. Which stock has the most systematic risk? ○ Stock I ○ Stock Il b-1. What is the standard deviation of each stock? Note: Do not round Intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Standard Deviation Stock Stock I b-2. Which one has the most unsystematic risk? ○ Stock I O Stock Il c. Which stock is "riskier"? ○ Stock I ○ Stock Il
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