1.) For this exercise, use the information provided for Problem 30 of Chapter 11
ID: 2672827 • Letter: 1
Question
1.) 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. What is the beta and standard deviation of Stock I?
a.) 1.2 and 24%
b.) 0.6 and 12%
c.) 1.2 and 12.5%
d.) Cannot be determined with the information given
2.)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:
A. Stock I has more overall risk than Stock II
B. Stock II has less systematic risk than Stock I
C. Stock I has a higher risk premium than Stock II
D. None of the above are correct statements
Explanation / Answer
These are the steps I take to solve a series of questions: 1) Read carefully the text book 2) Read carefully my class notes 3) Answer all questions correctly 4) I now have no problem answering these same questions when they show up on the next test
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