Question

Make distinctions between the standard deviation and beta in the measurement of risk in the capital market. Which one of these two metrics (standard deviation and beta) is relevant for measuring the risk of well-diversified portfolio? Explain why

Answer #1

Beta is the measure of market risk k. It is calculated by the
covariance of returns with market divided by variance of market
returns.Beta measures the systematic risk of the firm.Higher the
beta, higher the market risk of firm and returns of such stocks are
higher when there is boom and return of such stocks fall when there
is recession.

Beta is better measure for measuring risk of well diversified
portfolio. as diversification reduces unsystematic risk but
systematic risk cannot be diversified away. Moreover as per CAPM
the stocks provide return which compensates for only systematic
risk.

Make distinctions between the standard deviation and beta in the
measurement of risk in the capital market. Which one of these two
metrics (standard deviation and beta) is relevant for measuring the
risk of well-diversified portfolio? Explain why.

Explain all in detail and support your argument using the
financial concepts that are consistent with the book.
Make distinctions between the standard deviation and beta in the
measurement of risk in the capital market. Which one of these two
metrics (standard deviation and beta) is relevant for measuring the
risk of well-diversified portfolio? Explain why.

Standard deviation and beta are both used to measure the risk of
a stock. Explain each measure- what does it mean and how is it
calculated? Which measure would you recommend for a
well-diversified investor? Why?

Suppose the standard deviation of the market return is 20%. The
risk-free rate is 3%. What is the standard deviation of returns on
a well-diversified portfolio with a beta of 0.9?
a. 22.22%
b. 19.80%
c. 16.20%
d. 18.00%
e. 21.00%

Suppose the standard deviation of the market return is 17%.
a. What is the standard deviation of returns on
a well-diversified portfolio with a beta of 1.4? (Enter
your answer as a percent rounded to the nearest whole
number.)
Standard deviation
%
b. What is the standard deviation of returns on
a well-diversified portfolio with a beta of 0? (Enter your
answer as a percent rounded to the nearest whole
number.)
Standard deviation
%
c. A well-diversified portfolio has a...

Suppose you collect the information of two
stocks:
Expected Return
Standard Deviation
Beta
Stock A
13%
15%
1.6
Stock B
9.2%
25%
1.1
a. If you have a well-diversified portfolio of 50 stocks and you
are considering adding either Stock A or B to that portfolio, which
one is a riskier addition and why?
If you are a new investor looking for your first stock investment,
which is a riskier investment for you and why?
b. If the...

Stock X has a 9.0% expected return, a beta coefficient of 0.7,
and a 35% standard deviation of expected returns. Stock Y has a
13.0% expected return, a beta coefficient of 1.3, and a 25%
standard deviation. The risk-free rate is 6%, and the market risk
premium is 5%.
Calculate each stock's coefficient of variation. Do not round
intermediate calculations. Round your answers to two decimal
places.
CVx =
CVy =
Which stock is riskier for a diversified investor?
For...

Stock X has a 10.0% expected return, a beta coefficient of 0.9,
and a 40% standard deviation of expected returns. Stock Y has a
13.0% expected return, a beta coefficient of 1.3, and a 20%
standard deviation. The risk-free rate is 6%, and the market risk
premium is 5%.
Calculate each stock's coefficient of variation. Do not round
intermediate calculations. Round your answers to two decimal
places.
CVx =
CVy =
Which stock is riskier for a diversified investor?
For...

Stock X has a 10.5% expected return, a beta coefficient of 1.0,
and a 35% standard deviation of expected returns. Stock Y has a
12.0% expected return, a beta coefficient of 1.1, 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 investor?
For...

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...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 19 minutes ago

asked 44 minutes ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 3 hours ago

asked 3 hours ago

asked 3 hours ago

asked 3 hours ago