Security A has an expected rate of return of 6%, a standard deviation ofreturns of 30%, a correlation coefficient with the market of 20.25, and abeta coefficient of 20.5. Security B has an expected return of 11%, a standard deviation of returns of 10%, a correlation with the market of 0.75, anda beta coefficient of 0.5. Which security is more risky? Why?

Security A has an expected rate of return of 6%, a standard deviation ofreturns of 30%, a correlation coefficient with the market of 20.25, and abeta coefficient of 20.5. Security B has an expected return of 11%, a standard deviation of returns of 10%, a correlation with the market of 0.75, anda beta coefficient of 0.5. Which security is more risky? Why?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter3: Risk And Return: Part Ii

Section: Chapter Questions

Problem 2Q: Security A has an expected rate of return of 6%, a standard deviation of returns of 30%, a...

See similar textbooks

Similar questions

Security A has an expected return of 7%, a standard deviation of returns of 35%, a correlation coefficient with the market of −0.3, and a beta coefficient of −1.5. Security B has an expected return of 12%, a standard deviation of returns of 10%, a correlation with the market of 0.7, and a beta coefficient of 1.0. Which security is riskier? Why?
Which of the following statements about the Security Market Line are correct? I. The intercept point is the market rate of return. II. The slope of the line is beta. III. An investor should accept any return located above the SML line. IV. A beta of 0.0 indicates the risk-free rate of return
The risk-free rate and the expected market rate of return are 0.06 and 0.12 respectively. Using the CAPM model the expected rate of return of a security with a beta of 1.2 would be
Security A has an expected return of 7%, a standard deviation of returns of35%, a correlation coefficient with the market of 20.3, and a beta coefficientof 21.5. Security B has an expected return of 12%, a standard deviation ofreturns of 10%, a correlation with the market of 0.7, and a beta coefficient of1.0. Which security is riskier? Why?
A security has an expected rate of return of 0.11 and has a beta (B) of 1.5. The risk-free rate is 0.05 and the market expected rate of return is 0.09. Show whether this security is underpriced, fairly priced or overpriced. 1. The returns on share A follow the market model with coefficients aa = 0.01, Ba = 1.25. If at time t, K MT = 0.02 and the actual return on share A is 0.025, calculate EAt (the error term). 2. 3. An investor invests 30 percent of his wealth in a risky asset with an expected rate of return of 0.15 and a variance of 0.04 and 70 percent in a risk-free asset with a return of 0.06. Calculate the portfolio's expected return. 4. Toyota stock has the following probability distribution of expected prices one year from now: State Probability Price 1 25% 40% £50 2 £60 3 35% £70 Currently, each share is priced at £55. Toyota will pay a dividend of £4 per share at the end of the year. What is your expected holding-period return on Toyota? 5. According to the Capital Asset…
Security A has an expected return of 12.4% with a standard deviation of 15%, and a correlation with the market of 0.85. Security B has an expected return of -0.73% with a standard deviation of 20%, and a correlation with the market of -0.67. The standard deviation of rM is 12%. a. To someone who acts in accordance with the CAPM, which security is more risky, A or B? Why? (Hint: No calculations are necessary to answer this question; it is easy.) b. What are the beta coefficients of A and B? Calculations are necessary. c. If the risk-free rate is 6%, what is the value of rM?
Consider the following information (Assume that Security M and Security N are in the same financial market and the market is efficient): Standard Deviation BetaSecurity M 20% 1.25Security N 30% 0.80 Which security has more systematic risk? Group of answer choices Security M Security N Equal
Which of the two securities are the best? By using probability estimates, below is the computation of ff. statistics: Statistic Security A Security B Expected return Standard deviation 12% 20% 8% 10% Requirement Calculate the coefficient of variation for each security Explain why the standard deviation and coefficient of variation give different ranking of risk. Which method is superior and why?
multiple choice, Security X has an expected rate of return E(R) of 0.11 and a beta of 1.3. The risk-free rate is 0.04 and the market expected rate of return is 0.08. According to the Capital Asset Pricing Model (CAPM), this security is underpriced. overpriced. fairly priced. cannot be determined from data provided.
Assume that the expected rates of return and the beta coefficients of the alternatives supplied by an independent analyst are as follows: Security Estimated rate of returns Beta Nescom 5% 1.5 Market 4 1 Pk_Steel 3.5 0.75 T_Bills 3 0 Nawab 1 -0.6 What is a beta coefficient, and how are betas used in risk analysis? Do the expected returns appear to be related to each alternative’s market risk? Is it possible to choose among the alternatives on the basis of the information developed thus far?
Security A offers an expected rate of return of 12% with a standard deviation of 18%, and security B offers an expected return of 6% with a standard deviation of 25%. Obviously, security B is inferior to security A with respect to both mean return and standard deviation. Assume investors are risk-averse, why would anyone hold security B?
What is the equation for the Security Market Line? Define each term. If an asset has a beta of 2.0, what type of return should it realize compared to the market portfolio?