(TCO 8) For this exercise, use the information provided for Problem 30 of Chapte
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Question
(TCO 8) For this exercise, use the information provided for Problem 30 of Chapter 11 (page 375 of your textbook). Assume that the probability of the state of the economy has changed as follows:The probability of a recession has increased to 30% and the probability for a normal state of economy is now 40%. The market risk premium has increased by 1% as well. Which statement is true? Select all that apply: (Points : 4)
Stock II has more risk than Stock I
Stock II has less systematic risk than Stock I
Stock I has a lower risk premium than Stock II
Stock I has a lower expected return than Stock II
8. (TCO 8) Which statements are true regarding risk? Select all that apply: (Points : 4)
The expected return is usually not the same as the actual return
A key to assessing risk is determining how much risk an investment adds to a portfolio
Some risks cannot be decreased or mitigated by the financial manager.
The higher the risk, the higher the return investors require for the investment
select all that apply for each question
Explanation / Answer
(TCO 8) For this exercise, use the information provided for Problem 30 of Chapter 11 (page 375 of your textbook). Assume that the probability of the state of the economy has changed as follows:
The probability of a recession has increased to 30% and the probability for a normal state of economy is now 40%. The market risk premium has increased by 1% as well. Which statement is true? Select all that apply: (Points : 4)
Stock II has more risk than Stock I
Stock II has less systematic risk than Stock I
Stock I has a lower risk premium than Stock II
Stock I has a lower expected return than Stock II
8. (TCO 8) Which statements are true regarding risk? Select all that apply: (Points : 4)
The expected return is usually not the same as the actual return
A key to assessing risk is determining how much risk an investment adds to a portfolio
Some risks cannot be decreased or mitigated by the financial manager.
The higher the risk, the higher the return investors require for the investment
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