Question

Consider the following information on Stocks I and II:

Rate of Return if State Occurs | |||

State of Economy | Probability of State of Economy | Stock I | Stock II |

Recession | 0.25 | 0.03 | -0.20 |

Normal | 0.25 | 0.36 | 0.14 |

Irrational exuberance | 0.50 | 0.30 | 0.46 |

The market risk premium is 13 percent and the risk-free rate is 6 percent.

**a-1.** What is the beta of each stock?
**(Do not round intermediate calculations. Round your answers
to 2 decimal places.)**

Stock I:

Stock II:

**a-2.** Which stock has the most systematic
risk?

Stock I or Stock II?

**b-1.** What is the standard deviation of each
stock? **(Do not round intermediate calculations. Enter your
answers as a percent rounded to 2 decimal places.)**

Stock I:

Stock II:

**b-2.** Which one has the most unsystematic
risk?

Stock I or II?

**c.** Which stock is “riskier”?

Stock I or II?

Answer #1

Consider the following information on Stocks I and II:
Rate of Return if State Occurs
State of Economy
Probability of State of Economy
Stock I
Stock II
Recession
0.45
0.03
-0.19
Normal
0.25
0.35
0.14
Irrational exuberance
0.30
0.29
0.45
The market risk premium is 12 percent and the risk-free rate is
6 percent.
a-1. What is the beta of each stock?
(Do not round intermediate calculations. Round your answers
to 2 decimal places.)
Beta
Stock I
Stock II
a-2....

Consider the following information on Stocks I and II:
Rate of Return if State Occurs
State of Economy
Probability of State of Economy
Stock I
Stock II
Recession
.20
.03
-.22
Normal
.30
.38
.14
Irrational exuberance
.50
.32
.48
The market risk premium is 9 percent and the risk-free rate is
4.5 percent.
a-1. What is the beta of each stock?
(Do not round intermediate calculations. Round your answers
to 2 decimal places.)
a-2. Which stock has the most...

Consider the following information on Stocks I and II:
Rate of Return if State Occurs
State of Economy
Probability of State of Economy
Stock I
Stock II
Recession
.25
.04
-.23
Normal
.30
.30
.14
Irrational exuberance
.45
.24
.40
The market risk premium is 13 percent and the risk-free rate is
4 percent.
a-1. What is the beta of each stock?
(Do not round intermediate calculations. Round your answers
to 2 decimal places.)
a-2. Which stock has the most...

Consider the following information on Stocks I and II:
Rate of Return If State Occurs
Probability of
State of Economy
State of Economy
Stock I
Stock II
Recession
.40
.04
-.21
Normal
.30
.28
.14
Irrational exuberance
.30
.22
.38
The market risk premium is 11 percent, and the risk-free rate
is 4 percent.
1-a.
What is the beta of each stock? (Do not round
intermediate calculations. Round your answers to 2 decimal
places.)
Beta
Stock I
Stock II...

Consider the following information on Stocks I and II:
Rate of Return If State Occurs
Probability of
State of Economy
State of Economy
Stock I
Stock II
Recession
.35
.04
-.20
Normal
.30
.27
.14
Irrational exuberance
.35
.21
.37
The market risk premium is 10 percent, and the risk-free rate
is 4 percent.
1-a.
What is the beta of each stock? (Do not round
intermediate calculations. Round your answers to 2 decimal
places.)
Beta
Stock I
Stock II...

Consider the following information on Stocks I and II:
RATE OF RETURN IF STATE OCCURS
STATE OF
ECONOMY
PROBABILITY OF
STATE OF ECONOMY
STOCK I
STOCK II
Recession
0.06
-0.35
-0.25
Normal
0.23
0.29
0.23
Irrational exuberance
0.71
0.39
0.29
The market risk premium is 12 percent, and the risk-free rate
is 5.4 percent.
For standard deviations: (Do not include the
percent signs (%). Round your answers to 2 decimal places....

Consider the following information on Stocks I and II:
Rate of Return if State Occurs
State of
Probability of
Economy
State of Economy
Stock I
Stock II
Recession
.28
.05
−
.20
Normal
.53
.17
.07
Irrational exuberance
.19
.06
.40
The market risk premium is 8 percent, and the risk-free rate is
2 percent. (Do not round intermediate calculations. Enter
your standard deviation answers as a percent rounded to 2 decimal
places (e.g., 32.16). Round your beta answers to...

Consider the following information on Stocks I and II:
Rate of Return if State Occurs
State of
Probability of
Economy
State of Economy
Stock I
Stock II
Recession
.30
.05
−
.30
Normal
.45
.22
.10
Irrational exuberance
.25
.05
.50
The market risk premium is 6 percent, and the risk-free rate is
2 percent. (Do not round intermediate calculations. Enter
your standard deviation answers as a percent rounded to 2 decimal
places (e.g., 32.16). Round your beta answers to...

Consider the following information on Stocks I and II:
Rate of Return if State Occurs
State of
Probability of
Economy
State of Economy
Stock I
Stock II
Recession
.30
.09
−
.24
Normal
.45
.16
.11
Irrational exuberance
.25
.10
.44
The market risk premium is 8 percent, and the risk-free rate is
4 percent. (Do not round intermediate calculations. Enter
your standard deviation answers as a percent rounded to 2 decimal
places (e.g., 32.16). Round your beta answers to...

Consider the following information on Stocks I and II:
Rate of Return if State Occurs
State of
Probability of
Economy
State of Economy
Stock I
Stock II
Recession
.25
.06
−
.29
Normal
.45
.21
.09
Irrational exuberance
.30
.15
.49
The market risk premium is 8 percent, and the risk-free rate is
4 percent. (Do not round intermediate calculations. Enter
your standard deviation answers as a percent rounded to 2 decimal
places (e.g., 32.16). Round your beta answers to...

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