Question

company A expected return = 0.12 std. dev = 0.4 Beta = 1.5 company B expected...

company A expected return = 0.12 std. dev = 0.4 Beta = 1.5 company B expected return = 0.11 std. devation = 0.18 beta = 0.8 risk free rate = 0.01 market return = 0.07

If the correlation coefficient between stock A and the market is 0.75, what is the market price of risk? which stock has a higher proportion of idiosyncratic risk?

Homework Answers

Answer #1

Market price of risk is a measure of excess return or extra return. For eg:- Sharpe ratio.

Sharpe ratio of company A = return - risk free rate / standard deviation

= 0.12 - 0.01 / 0.4

= 0.11 / 0.4

= 0.2750

Sharpe ratio of company 2 = return - risk / standard deviation

= 0.11 - 0.01 / 0.18

= 0.10 / 0.18

= 0.56

b) Idiosyncratic risk refers to unsystematic risk which is measured by standard deviation. Company A has higher standard deviation which means that it has higher proportion of idiosyncratic risk.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Given the following data, what is the expected return of stock B? Treynor std. dev. beta...
Given the following data, what is the expected return of stock B? Treynor std. dev. beta risk-free stock 0.212 18% 0.79 2.5% a. 3.16% b. 6.32% c. 9.48% d. 12.64% e. 19.25%
A stock has a beta of 0.79, the expected return on the market is 11%, and...
A stock has a beta of 0.79, the expected return on the market is 11%, and the risk-free rate is 1.5%. Calculate the expected return on the stock. (Enter percentages as decimals and round to 4 decimals) A stock has an expected return of 20%, the risk-free rate is 1.5%, and the market risk premium is 8%. Calculate the beta of this stock. (Round to 3 decimals) A stock has an expected return of 10%, its beta is 0.59, and...
A stock has a beta of 1.5, the expected return on the market is 11 percent,...
A stock has a beta of 1.5, the expected return on the market is 11 percent, and the risk-free rate is 7.15 percent. The expected return on this stock must be_________ percent. (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))
Stock Y has a beta of 1.5 and an expected return of 14.2 percent. Stock Z...
Stock Y has a beta of 1.5 and an expected return of 14.2 percent. Stock Z has a beta of 0.85 and an expected return of 10.7 percent.     Required: If the risk-free rate is 4.6 percent and the market risk premium is 7.1 percent, are these stocks correctly priced?        Stock Y undervalued or overvalued?     Stock Z undervalued or overvalued?  
A). A stock has a beta of 1.02, the expected return on the market is 0.09,...
A). A stock has a beta of 1.02, the expected return on the market is 0.09, and the risk-free rate is 0.05. What must the expected return on this stock be? Enter the answer with 4 decimals (e.g. 0.1234). B). You own a portfolio that has $4100 invested in Stock A and $4900 invested in Stock B. If the expected returns on these stocks are 0.18 and 0.01, respectively, what is the expected return on the portfolio? Enter the answer...
The stock of Big Jack Co. has a beta of 1.5 and a standard deviation of...
The stock of Big Jack Co. has a beta of 1.5 and a standard deviation of 35%. The stock of Little John Co. has a beta of 0.75 and a standard deviation of 50%. If the expected return on the stock market is 9% and the T-Bill rate is 3%, which stock has a higher expected return? By definition each stock has the same expected return; it is observed returns that differ. Big Jack You can’t tell without knowing the...
fund A Fund B $ invested $8000 $12,000 weight 40% 60% exp return 15% 12% std...
fund A Fund B $ invested $8000 $12,000 weight 40% 60% exp return 15% 12% std Dev 23% 14% Beta 1.92 1.27 Corr(A,B) .43 The term "Exp Return" is the expected return for the fund, while the term "Std Dev" is the standard deviation of the fund's returns. If the risk-free rate is 3.6%, the expected return on the portfolio is closest to? B) Beta of the portfolio is closest to? C)Treynor ratio of the portfolio is closest to?
1a)Calculate the expected return for B Services which has a beta of 0.83 when the risk...
1a)Calculate the expected return for B Services which has a beta of 0.83 when the risk free rate is 0.05 and you expect the market return to be 0.12. B) Calculate the expected return for D Industries which has a beta of 1.0 when the risk free rate is 0.03 and you expect the market return to be 0.13.
Stock X has a 9.5% expected return, a beta coefficient of 0.8, and a 30% standard...
Stock X has a 9.5% expected return, a beta coefficient of 0.8, and a 30% standard deviation of expected returns. Stock Y has a 12.0% expected return, a beta coefficient of 1.1, and a 25.0% standard deviation. The risk-free rate is 6%, and the market risk premium is 5%. Calculate each stock's coefficient of variation. Round your answers to two decimal places. Do not round intermediate calculations. CVx = CVy = Which stock is riskier for a diversified investor? For...
Stock X has a 9.5% expected return, a beta coefficient of 0.8, and a 35% standard...
Stock X has a 9.5% expected return, a beta coefficient of 0.8, and a 35% standard deviation of expected returns. Stock Y has a 12.5% expected return, a beta coefficient of 1.2, and a 30.0% standard deviation. The risk-free rate is 6%, and the market risk premium is 5%. Calculate each stock's coefficient of variation. Round your answers to two decimal places. Do not round intermediate calculations. CVx = _____ CVy = _____ Which stock is riskier for a diversified...