11 Jan

Consider the following information about stocks I and II

by jagguarpaw On: Finance - 0 Comment

Question: Consider the following information about Stocks I…

Consider the following information about stocks I and II

Rate of return for stock 1 and 2

State of economy	Probability of state of economy	Stock 1	Stock 2
Recession	.30	.10	-.25
Normal	.40	.17	.12
Irrational exuberance	.30	.11	.45

The market risk premium is 8 percent, and the risk-free rate is 3 percent. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16. Enter your return answers as a percent.)

The standard deviation on stock I’S RETURN IS? Percent, and the stock I beta is? The standard deviation on stock ll’s return? Percent, and the stock ll beta is? Therefore, based on the stock’s systematic risk/beta, stock one of two is “riskier”.

 

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