Consider the following information: Standard Deviation. Beta Security T 30% 1.90 Security K. 30% 1.20 a. Which security has more total risk? b. Which security has more systematic risk? c. Which security should have the higher expected return? d. What does the total risk consist of? What kind of risk is eliminated with portfolio diversification?

Consider the following information: Standard Deviation. Beta Security T 30% 1.90 Security K. 30% 1.20 a. Which security has more total risk? b. Which security has more systematic risk? c. Which security should have the higher expected return? d. What does the total risk consist of? What kind of risk is eliminated with portfolio diversification?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 3Q: Security A has an expected return of 7%, a standard deviation of returns of 35%, a correlation...

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Security A has an expected return of 7%, a standard deviation of returns of 35%, a correlation coefficient with the market of −0.3, and a beta coefficient of −1.5. Security B has an expected return of 12%, a standard deviation of returns of 10%, a correlation with the market of 0.7, and a beta coefficient of 1.0. Which security is riskier? Why?
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APT An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free rate is 6%, the expected return on the first factor (r1) is 12%, and the expected return on the second factor (r2) is 8%. If bi1 = 0.7 and bi2 = 0.9, what is Crisp’s required return?
Consider the following information: Standard Deviation Beta Security T 30% 1.90 Security K 30% 1.20 Which security has more total risk? Which security has more systematic risk? Which security should have the higher expected return? What does the total risk consist of? What kind of risk is eliminated with portfolio diversification?
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The following expected return and the standard deviation of current returns are known: Security (i) Expected Return Standard Deviation βi A 0.20 0.12 1.1 B 0.12 0.10 0.8 T-Bills 0.05 0 0 Market Portfolio 0.20 0.15 1 Required: Determine the weights of a portfolio with a standard deviation of 7% created by combining T-Bill and the market portfolio.
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