Security A has an expected rate of return of 6%, a standard deviation of returns of 30%, a correlation coefficient with the market of −0.25, and a beta coefficient of −0.5. Security B has an expected return of 11%, a standard deviation of returns of 10%, a correlation with the market of 0.75, and a beta coefficient of 0.5. Which security is more risky? Why?

Question

Want to see more full solutions like this?

Answer 1

Textbook Question

Chapter 3, Problem 2Q

Security A has an expected rate of return of 6%, a standard deviation of returns of 30%, a correlation coefficient with the market of −0.25, and a beta coefficient of −0.5. Security B has an expected return of 11%, a standard deviation of returns of 10%, a correlation with the market of 0.75, and a beta coefficient of 0.5. Which security is more risky? Why?

Expert Solution & Answer

Summary Introduction

To discuss: The security that is much riskier.

Explanation of Solution

In case of diversified portfolio due to lower negative correlation and beta with the other stocks, security A will be mess risky. However, in a single-asset portfolio, due to σ_A > σ_B and CV_A > CV_B, security A will be much risky.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

Security A has an expected rate of return of 6%, a standard deviation ofreturns of 30%, a correlation coefficient with the market of 20.25, and abeta coefficient of 20.5. Security B has an expected return of 11%, a standard deviation of returns of 10%, a correlation with the market of 0.75, anda beta coefficient of 0.5. Which security is more risky? Why?

Security A has an expected return of 7%, a standard deviation of returns of35%, a correlation coefficient with the market of 20.3, and a beta coefficientof 21.5. Security B has an expected return of 12%, a standard deviation ofreturns of 10%, a correlation with the market of 0.7, and a beta coefficient of1.0. Which security is riskier? Why?

The risk-free rate is 3 percent, the expected return on the PSEi is 13 percent, and its standard deviation is 23 percent. XYZ co, has a standard deviation of 50 percent and a correlation of 65 with the market. Calculate XYZ beta and expected return then explain the role of a security’s beta in the calculation of expected returns

Answer 2

Textbook Question

Chapter 3, Problem 2Q

Security A has an expected rate of return of 6%, a standard deviation of returns of 30%, a correlation coefficient with the market of −0.25, and a beta coefficient of −0.5. Security B has an expected return of 11%, a standard deviation of returns of 10%, a correlation with the market of 0.75, and a beta coefficient of 0.5. Which security is more risky? Why?

Expert Solution & Answer

Summary Introduction

To discuss: The security that is much riskier.

Explanation of Solution

In case of diversified portfolio due to lower negative correlation and beta with the other stocks, security A will be mess risky. However, in a single-asset portfolio, due to σ_A > σ_B and CV_A > CV_B, security A will be much risky.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Textbook Question

Chapter 3, Problem 2Q

Security A has an expected rate of return of 6%, a standard deviation of returns of 30%, a correlation coefficient with the market of −0.25, and a beta coefficient of −0.5. Security B has an expected return of 11%, a standard deviation of returns of 10%, a correlation with the market of 0.75, and a beta coefficient of 0.5. Which security is more risky? Why?

Expert Solution & Answer

Summary Introduction

To discuss: The security that is much riskier.

Explanation of Solution

In case of diversified portfolio due to lower negative correlation and beta with the other stocks, security A will be mess risky. However, in a single-asset portfolio, due to σ_A > σ_B and CV_A > CV_B, security A will be much risky.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Textbook Question

Chapter 3, Problem 2Q

Security A has an expected rate of return of 6%, a standard deviation of returns of 30%, a correlation coefficient with the market of −0.25, and a beta coefficient of −0.5. Security B has an expected return of 11%, a standard deviation of returns of 10%, a correlation with the market of 0.75, and a beta coefficient of 0.5. Which security is more risky? Why?

Expert Solution & Answer

Summary Introduction

To discuss: The security that is much riskier.

Explanation of Solution

In case of diversified portfolio due to lower negative correlation and beta with the other stocks, security A will be mess risky. However, in a single-asset portfolio, due to σ_A > σ_B and CV_A > CV_B, security A will be much risky.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

Expert Solution & Answer

Summary Introduction

To discuss: The security that is much riskier.

Explanation of Solution

In case of diversified portfolio due to lower negative correlation and beta with the other stocks, security A will be mess risky. However, in a single-asset portfolio, due to σ_A > σ_B and CV_A > CV_B, security A will be much risky.

Answer 8

Expert Solution & Answer

Summary Introduction

To discuss: The security that is much riskier.

Explanation of Solution

In case of diversified portfolio due to lower negative correlation and beta with the other stocks, security A will be mess risky. However, in a single-asset portfolio, due to σ_A > σ_B and CV_A > CV_B, security A will be much risky.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Summary Introduction

To discuss: The security that is much riskier.

Answer 12

Explanation of Solution

In case of diversified portfolio due to lower negative correlation and beta with the other stocks, security A will be mess risky. However, in a single-asset portfolio, due to σ_A > σ_B and CV_A > CV_B, security A will be much risky.

Answer 13

Ch. 3 - Security A has an expected rate of return of 6%, a...Ch. 3 - The standard deviation of stock returns for Stock...Ch. 3 - APT An analyst has modeled the stock of Crisp...Ch. 3 - Two-Asset Portfolio Stock A has an expected return...Ch. 3 - Prob. 4P Ch. 3 - You have been hired at the investment firm of...Ch. 3 - You have been hired at the investment firm of...Ch. 3 - You have been hired at the investment firm of...Ch. 3 - You have been hired at the investment firm of...Ch. 3 - You have been hired at the investment firm of...

Videos

Explanation of Solution

Want to see more full solutions like this?

Chapter 3 Solutions