a. Calculate the beta of each stock. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Calculate the standard deviation of each stock. (Do not round intermediate b. calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c. Which stock has the most systematic risk? d. Which one has the most unsystematic risk? e. Which stock is "riskier"?

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
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Consider the following information on Stocks I and II:
State of
Economy
Probability of
State of
Rate of Return
if State Occurs
Economy
Stock I
Stock II
Recession
.25
-.22
.04
.15
Normal
.60
.22
Irrational
exuberance
.45
.15
.16
The market risk premium is 7 percent, and the risk-free rate is 4 percent.
a.
Calculate the beta of each stock. (Do not round intermediate calculations and
round your answers to 2 decimal places, e.g., 32.16.)
Calculate the standard deviation of each stock. (Do not round intermediate
b. calculations and enter your answers as a percent rounded to 2 decimal places,
e.g., 32.16.)
c. Which stock has the most systematic risk?
d. Which one has the most unsystematic risk?
e.
Which stock is "riskier"?
Transcribed Image Text:Consider the following information on Stocks I and II: State of Economy Probability of State of Rate of Return if State Occurs Economy Stock I Stock II Recession .25 -.22 .04 .15 Normal .60 .22 Irrational exuberance .45 .15 .16 The market risk premium is 7 percent, and the risk-free rate is 4 percent. a. Calculate the beta of each stock. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Calculate the standard deviation of each stock. (Do not round intermediate b. calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c. Which stock has the most systematic risk? d. Which one has the most unsystematic risk? e. Which stock is "riskier"?
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