Question

Standard deviation and beta are both used to measure the risk of a stock. Explain each...

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?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Standard Deviation is the dispersion of the returns from the mean. This represents the standalone risk of stock.
Standard Deviation =((Return-Mean)^2/(n-1))^0.5

Beta represents the market or systematic risk of stock,It represents the correlation of stock with the market.
Beta =Covariance of Stock with Market/Standard Deviation of Market

I would use beta as an investor. Because for a well diversified investor beta is better and its helps in diversifying a portfolio which can withstand recession and also privide decent returns during boom

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Make distinctions between the standard deviation and beta in the measurement of risk in the capital...
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
Make distinctions between the standard deviation and beta in the measurement of risk in the capital...
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.
Both Beta in the CAPM and the standard deviation measure the risk of any asset. Which...
Both Beta in the CAPM and the standard deviation measure the risk of any asset. Which of these measures best captures the risk of an asset when we think about the return we expect from that asset? Explain.
Both Beta in the CAPM and the standard deviation measure the risk of any asset. Which...
Both Beta in the CAPM and the standard deviation measure the risk of any asset. Which of these measures best captures the risk of an asset when we think about the return we expect from that asset? Please explain.
Suppose you collect the information of two stocks: Expected Return Standard Deviation Beta Stock A 13%...
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...
A stock's beta is more relevant as a measure of risk to an investor who holds...
A stock's beta is more relevant as a measure of risk to an investor who holds only one stock than to an investor who holds a well-diversified portfolio. Group of answer choices True False
You are considering investing in on of the following stocks: Stock A has a beta of...
You are considering investing in on of the following stocks: Stock A has a beta of 1.29 and a standard deviation of 20%, Stock B has a beta of 0.61 and a standard deviation of 10%, and Stock C has a beta of 0.59 and a standard deviation of 12%. If you are a risk averse investor, you would choose Stock _____ and Stock ______ if it is to be held as part of a well-diversified portfolio. C; B A;...
Stock X has a 10.0% expected return, a beta coefficient of 0.9, and a 40% standard...
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...
1. Define risk and investment risk. Please describe standard deviation and the coefficient of variation and...
1. Define risk and investment risk. Please describe standard deviation and the coefficient of variation and how they are used to develop a measure of risk for a stock. The average stock in the S&P 500 has a standard deviation in ROR of 22% and a mean ROR of 12%. Another stock, a publicly-traded venture capital stock, VC Inc., has a standard deviation in ROR of 50% and a mean of 50%. Which stock is riskier and explain your response...
Stock X has a 9.0% expected return, a beta coefficient of 0.7, and a 35% standard...
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...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT