Consider the following data. Stock Standard Deviation Beta X 5% 1.37 Y 8% 0.61 To minimize risk, you should choose Stock _____ if held individually and Stock _____ if held as part of a well-diversified portfolio. X; Y Y; X There is not enough information to determine which stocks to hold. Y; Y X; X

Consider the following data. Stock Standard Deviation Beta X 5% 1.37 Y 8% 0.61 To minimize risk, you should choose Stock _ if held individually and Stock _ if held as part of a well-diversified portfolio. X; Y Y; X There is not enough information to determine which stocks to hold. Y; Y X; X

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 6P

See similar textbooks

Related questions

Q: Stock X has a 10.0% expected return, a beta coefficient of 0.9, and a 40% standard deviation of…

A: The coefficient of variation (CV), also known as relative standard deviation (RSD), is a normalized…

Q: Suppose securities A, B, and C have the following expected return and risk.…

A: Stock with lowest coefficient of variance is mean variance dominant stock. coefficient of variance…

Q: Consider the following stocks. Stock Expected return Std. Deviation Beta A 15.9% 27.8% 0.93…

A: Sharpe ratio = (Expected return - Risk free rate of return) / Standard deviation

Q: Consider the following information: Probability of State of Economy 0.54 0.46 State of Rate of…

A: Expected return refers to the anticipated amount of profit or loss that an investor calculates from…

Q: Stock X has a 9.5% expected return, a beta coefficient of 0.8, and a 40% standard deviation of…

A: "We will solve the first three sub-parts for you because you asked a question with many sub-parts."…

Q: The following three stocks are available in the market: E(R) β Stock A 11.0 % 1.32…

A: Return on an investment is the difference between total income generated from an investment and the…

Q: 3. The data below describe a three-stock financial market that satisfies the single-index model:…

A: We will apply the required formula to calculate the required output. Return can be calculated by…

Q: Consider the following information about Stocks X and Y: State of Economy Probability of State Stock…

A: Given: Economy Probability (P) Stock X Stock Y Recession 0.15 0.11 -0.25 Steady 0.55 0.18…

Q: The following three stocks are available in the market: E(R) β Stock A 10.9 % 1.18…

A: Given the following information Expected return of Stock A: 10.9%Beta of Stock A: 1.18 Expected…

Q: indicate whether each statement in the following table is true or false:

A: Beta of a stock is the degree of responsiveness to movements in price with changes in the stock…

Q: A stock with a low standard deviation always contributes less to portfolio risk than a stock with a…

A: Stock market is divided in two different markets for the purpose of gaining returns: Primary market…

Q: Stock Number of shares Stock Price Beta A 750 33 1.2 В 220 51 0.8 460 19 1.4 Economic condition…

A: Since only part b is required, the answer for part b is provided as per given instructions.

Q: A portfolio consists of Stock X and Stock Y. Data for the 2 stocks is shown below. STOCK X…

A: The question is based on the calculation of beta value of portfolio. Portfolio Beta is weighted…

Q: EXPECTED RETURNS Stocks X and Y have the following probability distributions ofexpected future…

A: The rate which the investor is expected to generate in its investment over a time period is referred…

Q: Use the following table of information: Stock X Stock Y Expected Return 14% 18% Standard Deviation…

A: Expected return is a way of calculating profit or loss anticipated by an investor on his investment…

Q: Suppose that there are many stocks in the security market and that the characteristics of stocks A…

A: Expected return can be defined as the weighted average of the distribution of probable returns of…

Q: A stock with a beta of more than 1.0, when added to a portfolio with a beta of 1.0, will Select one:…

A: Beta is a measure of the systematic risk of a stock or portfolio as compared to the market. The beta…

Q: The following three stocks are available in the market: E(R) Beta Stock A 11.3% 1.22 Stock B…

A: Given the following information Expected return of Stock A: 11.3%Beta of Stock A: 1.22 Expected…

Q: Consider the two (excess return) index model regression results for A and B: RA = 0.8% + 1RM…

A: Residual standard deviation is measured by using the firm specific risk.

Q: Stock X has a 10.0% expected return, a beta coefficient of 0.9, and a 35% standard deviation of…

A: In the given question we have six different parts of the question related to portfolio and we need…

Q: Stock X has a 10% expected return, a beta coefficient of 0.8, and a 25% standard deviation of…

A: Coefficient of variation tells how much the data points are dispersed around the mean. It is a…

Q: You have the following data on three stocks: Stock Standard Deviation Beta A. 0.15 0.79 0.25 0.61 C…

Q: CAPM, PORTFOLIO RISK. AND RETURN Consider the following information for Stocks X, Y, and Z. The…

A: Note : As per our guidelines, we can only answer up to 3 subparts only. Please post other parts…

Q: What is the standard deviation of stock A if it has the following probabilities and rate of returns.…

A: Expected return can be defined as the weighted average of the distribution of probable returns of…

Q: Stock X has a 10% expected return, a beta coefficient of 0.9, and a 35% standard deviation of…

A: Coefficient of variation =Standard deviation /Mean return x 100

Q: USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM Stock Rit Rmt ai Beta C 12 10 0 0.8…

A: Abnormal return = Return in excess of market return in the given period = Rit - RmtFor stock C, the…

Q: Suppose that there are many stocks in the security market and that the characteristics of stocks A…

A: Calculation of risk free rate of return: Excel workings:

Q: Stock X and Stock Y has following distribution: Stock X: expected return of 10%, a beta coefficient…

A: (iv) Here the expected return should be greater than the required rate. We should select stock Y…

Q: E(R) E(R) E(R) A A B.

A: The most appropriate image that represents the risk and returns characteristics of a portfolio is…

Q: Stock Y has a beta of 1.2 and an expected return of 11.5 percent. Stock Z has a beta of .80 and an…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: A stock has an expected return of 13 percent, its beta is 1.35, and the expected return on the…

A: A risk-free rate of return is the return that an investor earns by investing in securities that have…

Q: Suppose that there are many stocks in the security market and that the characteristics of stocks A…

A: As the correlation between the stocks is -1. Standard deviation for portfolio will be written as:…

Q: Use the following table of information: Stock X Stock Y Expected Return 14% 18% Standard Deviation…

A: The term "variance" is referred to as the degree of volatility that a stock have with respect to its…

Q: Consider the following information about Stocks I and II: Probability of State of Economy State of…

A: An expected return is the return of the specific stock that is the chances of received at the end of…

Q: A certain stock has a beta of 1.2. If the risk-free rate of return is 4.5 percent and the market…

A: Risk-free return = 4.5% Market risk premium = 8% a) Beta = 1.2 b) Beta = 1.08 CAPM formula: Expected…

Q: The returns on each of the three stocks are positively correlated, but they are not perfectly…

A: As per CAPM Ri = Rf + B (Rm - Rf) Where Ri = Return on equity Rf = Risk free rate of return B =…

Q: Given the following information, determine the beta coefficient for Stock L that is consistent with…

A: Given, Expected return for Stock L (E(R))= 10.5% Nominal Risk Free Rate (Rf) = 3.5% Expected Return…

Q: The information regarding the risk level of three different stocks is presented below. 1. Which…

A: Higher beta is not desirable.

Q: Stock J has a beta of 1.28 and an expected return of 13.56 percent, while Stock K has a beta of .83…

A: Market beta is 1. Beta of Stock J = 1.28 Beta of Stock K = 0.83 Let Weight of Stock J = WJ Let…

Q: An investor has the following expectations on the performance of Stock X and Stock Y: Probability…

Q: What is the standard deviation of a portfolio composed of 60 per cent Aquaman and 40 per cent Green…

A: Standard deviation refers to a concept which measures the risk involved in a investment. It helps…

Q: Assume the risk-free rate is r = 3%. Consider the data in the table below: Stock Expected Return…

A: The capital market line (CML) represents portfolios that optimally combine risk and return. capital…

Q: Suppose that the index model for stocks A and B is estimated from excess returns with the following…

A: Variance of Stock: volatility of stock is measured by variance of stock How much a stock tends to…

Q: Consider the following table, which gives a security analyst's expected return on two stocks in two…

A: Beta is a measure of risk on the particular stock compared to the whole market or portfolio. Beta…

Question

Consider the following data.

Stock	Standard Deviation	Beta
X	5%	1.37
Y	8%	0.61

To minimize risk, you should choose Stock _____ if held individually and Stock _____ if held as part of a well-diversified portfolio.

X; Y
Y; X
There is not enough information to determine which stocks to hold.
Y; Y
X; X

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Risk Minimisation in Individual and portfolio investment:

VIEW

Answer:

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Market equity beta measures the covariability of a firms returns with all shares traded on the market (in excess of the risk-free interest rate). We refer to the degree of covariability as systematic risk. The market prices securities so that the expected returns should compensate the investor for the systematic risk of a particular stock. Stocks carrying a market equity beta of 1.20 should generate a higher return than stocks carrying a market equity beta of 0.90. Nonsystematic risk is any source of risk that does not affect the covariability of a firms returns with the market. Some writers refer to nonsystematic risk as firm-specific risk. Why is the characterization of nonsystematic risk as firm-specific risk a misnomer?
The standard deviation of stock returns for Stock A is 40%. The standard deviation of the market return is 20%. If the correlation between Stock A and the market is 0.70, then what is Stock A’s beta?
Calculate the correlation coefficient between Blandy and the market. Use this and the previously calculated (or given) standard deviations of Blandy and the market to estimate Blandy’s beta. Does Blandy contribute more or less risk to a well-diversified portfolio than does the average stock? Use the SML to estimate Blandy’s required return.
Two-Asset Portfolio Stock A has an expected return of 12% and a standard deviation of 40%. Stock B has an expected return of 18% and a standard deviation of 60%. The correlation coefficient between Stocks A and B is 0.2. What are the expected return and standard deviation of a portfolio invested 30% in Stock A and 70% in Stock B?
Suppose that the return for a particular large-cap stock fund is normally distributed with a mean of 14.4% and standard deviation of 4.4%. a. What is the probability that the large-cap stock fund has a return of at least 20%? b. What is the probability that the large-cap stock fund has a return of 10% or less?
Assume you know the expected and required rate of returns of the following stocks. Explainwhich of the following stocks are undervalued, overvalued and fairly valued. Stock Expected rate of return Required rate of return Evaluation X 10 12 ? Y 6 5 ? Z 4 4 ?
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.
Consider the following stocks. Stock Expected return Std. Deviation Beta A 15.9% 27.8% 0.93 B 17.8% 23.0% -1.15 C 35.1% 47.6% 0.79 D 24.2% 39.3% 1.26 If the risk-free rate is 2%, which stock has the lowest Sharpe ratio? Stock C Stock B Stock A Stock D