The expected rate of return for the stock of Cornhusker Enterprises is 15 percent, with a standard deviation of 5 percent. The expected rate of return for the stock of Mustang Associates is 10 percent, with a standard deviation of 2 percer a. Which stock would you consider to be riskier? Round your answers to two decimal places. The coefficient of variation of returns for Cornhusker's stock: The coefficient of variation of returns for Mustang's stock: -Select- ✓is riskier. b. If you knew that the beta coefficient of Cornhusker stock is 0.9 and the beta of Mustang is 0.6, how would your answer to Part a change? Looking only at systematic risk -Select- ✓is riskier.
The expected rate of return for the stock of Cornhusker Enterprises is 15 percent, with a standard deviation of 5 percent. The expected rate of return for the stock of Mustang Associates is 10 percent, with a standard deviation of 2 percer a. Which stock would you consider to be riskier? Round your answers to two decimal places. The coefficient of variation of returns for Cornhusker's stock: The coefficient of variation of returns for Mustang's stock: -Select- ✓is riskier. b. If you knew that the beta coefficient of Cornhusker stock is 0.9 and the beta of Mustang is 0.6, how would your answer to Part a change? Looking only at systematic risk -Select- ✓is riskier.
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 3P
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Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
Transcribed Image Text:The expected rate of return for the stock of Cornhusker Enterprises is 15 percent, with a standard deviation of 5 percent. The expected rate of return for the stock of Mustang Associates is 10 percent, with a standard deviation of 2 percen
a. Which stock would you consider to be riskier? Round your answers to two decimal places.
The coefficient of variation of returns for Cornhusker's stock:
The coefficient of variation of returns for Mustang's stock:
✓is riskier.
-Select-
b. If you knew that the beta coefficient of Cornhusker stock is 0.9 and the beta of Mustang is 0.6, how would your answer to Part a change?
Looking only at systematic risk -Select-
✓is riskier.
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