S Problem 13-26 Systematic versus Unsystematic Risk [LO3] Consider the following information about Stocks I and II: State of Economy Recession Normal Irrational exuberance Probability of State of Economy 25 45 30 Rate of Return if State Occurs The standard deviation on Stock I's return is deviation on Stock Il's return is stock's systematic risk/beta, Stock Stock I .02 30 08 Stock II -.33 13 53 The market risk premium is 8 percent, and the risk-free rate is 5 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 2 decimal places, e.g., 32.16.) percent, and the Stock I beta is percent, and the Stock II beta is is "riskier". The standard Therefore, based on the

S Problem 13-26 Systematic versus Unsystematic Risk [LO3] Consider the following information about Stocks I and II: State of Economy Recession Normal Irrational exuberance Probability of State of Economy 25 45 30 Rate of Return if State Occurs The standard deviation on Stock I's return is deviation on Stock Il's return is stock's systematic risk/beta, Stock Stock I .02 30 08 Stock II -.33 13 53 The market risk premium is 8 percent, and the risk-free rate is 5 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 2 decimal places, e.g., 32.16.) percent, and the Stock I beta is percent, and the Stock II beta is is "riskier". The standard Therefore, based on the

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter5: Risk Analysis

Section: Chapter Questions

Problem 11QE: Market equity beta measures the covariability of a firms returns with all shares traded on the...

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Consider the following information about Stocks X and Y: State of Economy Probability of State Stock X Returns Stock Y Returns Recession 0.15 0.11 -0.25 Steady 0.55 0.18 0.11 Boom 0.30 0.08 0.31 The market risk premium is 7.5 percent, and the risk-free rate is 4 percent. Which stock has the most systematic risk? Which one has the most unsystematic risk? Which stock is “riskier”? Explain.
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Consider the following information about Stocks I and II: Probability of State of Economy State of Rate of Return if State Occurs Economy Stock I Stock II Recession 0.15 0.20 -0.25 Normal 0.70 0.21 0.09 Irrational exuberance 0.15 0.06 0.44 The market risk premium is 7 percent, and the risk-free rate is 4 percent. a) Which stock has the most systematic risk? b) Which one has the most unsystematic risk? c) Which stock is "riskier"? Explain.
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