Question

Consider the following information on Stocks I and II:

State of | Probability of | Rate of Return if State Occurs | |||||||||

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

Recession | .20 | .010 | − | .30 | |||||||

Normal | .55 | .320 | .22 | ||||||||

Irrational exuberance | .25 | .180 | .40 | ||||||||

The market risk premium is 11 percent, and the risk-free rate is
4 percent.

Calculate the beta and standard deviation of Stock I. **(Do
not round intermediate calculations. Enter the standard deviation
as a percent and round both answers to 2 decimal places, e.g.,
32.16.)**

Stock I | |||

Beta | |||

Standard deviation | % | ||

Calculate the beta and standard deviation of Stock II.
**(Do not round intermediate calculations. Enter the standard
deviation as a percent and round both answers to 2 decimal places,
e.g., 32.16.)**

Stock II | |||

Beta | |||

Standard deviation | % | ||

Answer #1

1.

Beta=(0.20*0.010+0.55*0.320+0.25*0.180-4%)/11%=1.663636364

Standard Deviation=sqrt(0.20*(0.010-(0.20*0.010+0.55*0.320+0.25*0.180))^2+0.55*(0.320-(0.20*0.010+0.55*0.320+0.25*0.180))^2+0.25*(0.180-(0.20*0.010+0.55*0.320+0.25*0.180))^2)=0.121288911

2.

Beta=(0.20*(-0.30)+0.55*0.22+0.25*0.40-4%)/11%=1.1

Standard Deviation=sqrt(0.20*(-0.30-(0.20*(-0.30)+0.55*0.22+0.25*0.40))^2+0.55*(0.22-(0.20*(-0.30)+0.55*0.22+0.25*0.40))^2+0.25*(0.40-(0.20*(-0.30)+0.55*0.22+0.25*0.40))^2)=0.242278765

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
.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
.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...

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 about Stocks I and II:
State of Economy
Probability of Economy
Rate of Return if State Occurs
Stock I
Rate of Return if State Occurs
Stock II
Recession
.26
.06
- .21
Normal
.51
.18
.08
Irrational exuberance
.23
.07
.41
The market risk premium is 5 percent, and the risk-free rate is
4 percent. (Do not round intermediate calculations. Enter the
standard deviations as a percent and round all answers to 2 decimal
places, e.g., 32.16.)...

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
.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...

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