Consider the following information on Stocks I and II: Probability of State of Rate of Return if State Occurs State of Economy Economy Stock I Stock II Recession Normal 0.30 8.03 -0.30 Irrational exuberance 0.30 0.40 8.37 0.31 8.14 0.47 The market risk premium is 8 percent and the risk-free rate is 40.5 percent. a-1. What is the beta of each stock? Note: Do not round Intermediate calculations. Round your answers to 2 decimal places. Stock I Stock I Beta a-2. Which stock has the most systematic risk? ○ Stock I ○ Stock Il b-1. What is the standard deviation of each stock? Note: Do not round Intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Standard Deviation Stock I Stock I % b-2. Which one has the most unsystematic risk? ○ Stock I ○ Stock Il c. Which stock is "riskier"? ○ Stock I ○ Stock Il

K (Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return? Common Stock A Probability 0.20 0.60 0.20 Common Stock B Return 13% 17% 18% Probability 0.10 0.40 0.40 0.10 (Click on the icon in order to copy its contents into a spreadsheet.) Return -7% 5% 16% 21% www a. Given the information in the table, the expected rate of return for stock A is 16.40 %. (Round to two decimal places.) The standard deviation of stock A is 1.74 %. (Round to two decimal places.) b. The expected rate of return for stock B is 9.8 %. (Round to two decimal places.) The standard deviation for stock B is 6.12 %. (Round to two decimal places.)

b. Consider the following information about three stocks: Probability of State of i. ii. iii. iv. State of Economy V. Boom Recession Economy 0.40 0.60 From the information given, you are required to answer the following questions. Compute the Standard Deviation for each stock. Compute the Coefficient Variation for each stock. Based on your computation in part (i) and (ii), which stock is riskier? Explain your answer. Rate of Return if State Occurs Stock Hang Stock Hang Jebat 7% 13% Tuah 28% (5%) Stock Hang Kasturi 15% 3% Assume that you have RM14,000 invested in Stock Hang Jebat whose beta is 1.5, RM19,000 invested in Stock Hang Kasturi whose beta is 2.5 and RM17,000 invested in Stock Hang Tuah whose beta is 1.6. Determine what is the beta of this portfolio. Based on your answer in part (iv), compute the required rate of return for this portfolio, given that the market rate of return is 13% and risk-free rate is 5%.

Suppose the beta estimated from the CAPM for stock A is 2.3 and stock B  is 1.1.   What is the beta of an equally weighted stock portoflio of A and B stock?

Consider the following simplified APT model: Factor                                                  Expected Risk Premium Market                                                6.4% Interest Rate                                       -0.6% Yield Spread                                        5.1%                                                        Factor Risk Exposures                                     Market               Interest Rate             Yield Spread Stock                          Stock (b1)                  (b2)                             (b3) P                                    1.0                           -2.0                             -0.2 P2                                  1.2                            0                                 0.3 P3                                  0.3                            0.5                              1.0 a) Calculate the expected return for the above stocks. Assume risk free rate is 5%. Consider a portfolio with equal…

Calculate the coefficients of variation for the following stocks: Stock Expected return Standard deviation of return 1 0.065 0.25 2 0.06 0.17 3 0.14 0.24   What is the coefficient of variation for stock 1? What is the coefficient of variation for stock 2? What is the coefficient of variation for stock 3?   f you want to get the best risk-to-reward trade-off, which stock should you buy? Stock 2 Stock 3 Stock 1

Consider the following information: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Recession 0.30 0.05-0.15 Normal 0.55 0.15 0.15 Boom 0.15 0.20 0.35 Calculate the expected return for the two stocks.

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.

(Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return? Common Stock A Probability 0.25 0,50 0.25 Probability 0.10 0.40 0.40 0.10 (Click on the icon in order to copy its contents into a apreadsheet) Common Stock B Return 10% 17% 18% Return -4% 7% 13% 20% G a. Given the information in the table, the expected rate of return for stock A is 15.5% (Round to two decimal places) The standard deviation of stock A is (Round to two decimal places.)

You are comparing Stock A to Stock B. Given the following information, what is the difference in the expected returns of these two securities?  State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Normal .75 .13 .16 Recession .25 −.05 −.21