There is a probability of 25 percent that the economy will boom; otherwise, it will be normal. Stock A is expected to return 18 percent in a boom and 9 percent otherwise. Stock B is expected to return 9 percent in a boom and 5 percent otherwise. What is the standard deviation of a portfolio that is invested 40 percent in Stock A and 60 percent in Stock B? Clarity Homes stock has a beta of 1.46. The risk-free rate of return is 3.07 percent and the market rate of return is 11.81 percent. What is the amount of the risk premium on the stock?

There is a probability of 25 percent that the economy will boom; otherwise, it will be normal. Stock A is expected to return 18 percent in a boom and 9 percent otherwise. Stock B is expected to return 9 percent in a boom and 5 percent otherwise. What is the standard deviation of a portfolio that is invested 40 percent in Stock A and 60 percent in Stock B? Clarity Homes stock has a beta of 1.46. The risk-free rate of return is 3.07 percent and the market rate of return is 11.81 percent. What is the amount of the risk premium on the stock?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 14P

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