Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Question
Chapter 11, Problem 33QAP
Summary Introduction
Adequate information:
Market risk premium (MRP) =7.5%
Risk-free rate (R f) =4%
Probability of recession (PR) = 0.15
Probability of normal state (PN) =0.55
Probability of irrational exuberance (PIE) =0.30
Rate of return of Stock 1 in normal state (R1N) =0.17
Rate of return of Stock 1 in irrational exuberance (R1IE) =0.06
Rate of return of Stock 2 in recession (R2R) =-0.35
Rate of return of Stock 2 in normal state (R2N) =0.12
Rate of return of Stock 2 in irrational exuberance (R2IE) =0.33
To determine: Stock with more systematic risk, a stock with more unsystematic risk, and the riskier stock.
Introduction: The risk associated with any stock depends upon the standard deviation and expected return generated by the respective stock.
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Students have asked these similar questions
Based on the following information, which stock has the least risk?
A. Stock A
B. Stock B
C. Stock C
D. Stock D
1. Beta is positively related
A. the degree of correlation between a stock's return and the market return
B. the systematic risk of a stock
C. risk premium required by the stock
D. all of the above
Which of the following stocks have the highest systematic risk?
A. A stock with a high correlation to the market and a low return volatility.
B. A stock with a low correlation to the market and a high return volatility.
C. A stock with a high correlation to the market and high return volatility.
D. A stock with a low correlation to the market and a low return volatility.
Chapter 11 Solutions
Corporate Finance
Ch. 11 - Diversifiable and Nondiversifiable Risks In broad...Ch. 11 - Systematic versus Unsystematic Risk Classify the...Ch. 11 - Expected Portfolio Returns If a portfolio has a...Ch. 11 - Diversification True or false: The most important...Ch. 11 - Portfolio Risk If a portfolio has a positive...Ch. 11 - Beta and CAPM Is it possible that a risky asset...Ch. 11 - Covariance Briefly explain why the covariance of a...Ch. 11 - Prob. 8CQCh. 11 - Prob. 9CQCh. 11 - Prob. 10CQ
Ch. 11 - Determining Portfolio Weights What are the...Ch. 11 - Portfolio Expected Return You own a portfolio that...Ch. 11 - Prob. 3QAPCh. 11 - Portfolio Expected Return You have 10,000 to...Ch. 11 - Prob. 5QAPCh. 11 - Prob. 6QAPCh. 11 - Calculating Expected Returns A portfolio is...Ch. 11 - Returns and Standard Deviations Consider the...Ch. 11 - Returns and Standard Deviations Consider the...Ch. 11 - Calculating Portfolio Betas You own a stock...Ch. 11 - Calculating Portfolio Betas You own a portfolio...Ch. 11 - Using CAPM A stock has a beta of 1.15, the...Ch. 11 - Prob. 13QAPCh. 11 - Prob. 14QAPCh. 11 - Prob. 15QAPCh. 11 - Using CAPM A stock has a beta of 1.08 and an...Ch. 11 - Prob. 17QAPCh. 11 - Reward-to-Risk Ratios Stock Y has a beta of 1.15...Ch. 11 - Prob. 19QAPCh. 11 - Portfolio Returns Using information from the...Ch. 11 - Prob. 21QAPCh. 11 - Prob. 22QAPCh. 11 - Analyzing a Portfolio You want to create a...Ch. 11 - Prob. 24QAPCh. 11 - Prob. 25QAPCh. 11 - Prob. 26QAPCh. 11 - Prob. 27QAPCh. 11 - Prob. 28QAPCh. 11 - Prob. 29QAPCh. 11 - Prob. 30QAPCh. 11 - Prob. 31QAPCh. 11 - Prob. 32QAPCh. 11 - Prob. 33QAPCh. 11 - Prob. 34QAPCh. 11 - Prob. 35QAPCh. 11 - Prob. 36QAPCh. 11 - Prob. 37QAPCh. 11 - Prob. 38QAPCh. 11 - Prob. 1MCCh. 11 - Prob. 2MC
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