Homework Help is Here – Start Your Trial Now!
Business
Finance
Rocket's expected return is %. (Enter as a per Farmer's expected return is %. (Enter as a per Which stock performed better once you take risk into account?

Rocket's expected return is %. (Enter as a per Farmer's expected return is %. (Enter as a per Which stock performed better once you take risk into account?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 12P
See similar textbooks
icon
Related questions
Question
5. Last year, Rocket Inc. earned a 19% return. Farmer's Corp. earned 11%. The overall market return last year was 16%, and the risk-free rate was 2%. If Rocket stock has a beta of 1.8 and Farmer's has a beta of 0.5, which stock performed better once you take risk into account? Review Only Click the icon to see the Worked Solution. Rocket's expected return is %. (Enter as a percentage and round to one decimal place.) Farmer's expected return is %. (Enter as a percentage and round to one decimal place.) Which stock performed better once you take risk into account? (Select the best answer below.) A. Given its beta, Rocket should have earned a much higher return than it did (11% vs 19%). Farmer's, on the other hand, earned a higher return than we would have expected (27.2% vs 9.0%). So taking risk into account, Rocket was the better stock. B. Given its beta, Rocket should have earned a much higher return than it did (27.2% vs 19%). Farmer's, on the other hand, earned a higher return than we would have expected (11% vs 9.0%). So, taking risk into account, Farmer's was the better stock. c. Given its beta, Rocket should have earned a much lower return than it did (11% vs 9.0%). Farmer's, on the other hand, earned a higher return than we would have expected (19% vs 27.2%). So taking risk into account, Rocket was the better stock. O D. Given its beta, Rocket should have earned a much higher return than it did (27.2% vs 19%). Farmer's, on the other hand, earned a lower return than we would have expected (9.0% vs 11%). So taking risk into account, Rocket was the better stock.
Transcribed Image Text:5. Last year, Rocket Inc. earned a 19% return. Farmer's Corp. earned 11%. The overall market return last year was 16%, and the risk-free rate was 2%. If Rocket stock has a beta of 1.8 and Farmer's has a beta of 0.5, which stock performed better once you take risk into account? Review Only Click the icon to see the Worked Solution. Rocket's expected return is %. (Enter as a percentage and round to one decimal place.) Farmer's expected return is %. (Enter as a percentage and round to one decimal place.) Which stock performed better once you take risk into account? (Select the best answer below.) A. Given its beta, Rocket should have earned a much higher return than it did (11% vs 19%). Farmer's, on the other hand, earned a higher return than we would have expected (27.2% vs 9.0%). So taking risk into account, Rocket was the better stock. B. Given its beta, Rocket should have earned a much higher return than it did (27.2% vs 19%). Farmer's, on the other hand, earned a higher return than we would have expected (11% vs 9.0%). So, taking risk into account, Farmer's was the better stock. c. Given its beta, Rocket should have earned a much lower return than it did (11% vs 9.0%). Farmer's, on the other hand, earned a higher return than we would have expected (19% vs 27.2%). So taking risk into account, Rocket was the better stock. O D. Given its beta, Rocket should have earned a much higher return than it did (27.2% vs 19%). Farmer's, on the other hand, earned a lower return than we would have expected (9.0% vs 11%). So taking risk into account, Rocket was the better stock.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Risk Analysis
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
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
EBK CFIN
EBK CFIN
Finance
ISBN:
9781337671743
Author:
BESLEY
Publisher:
CENGAGE LEARNING - CONSIGNMENT
SEE MORE TEXTBOOKS