Calculating Risk Using Beta & Standard Deviation of Return
Not what you're looking for?
Common stock A has an expected return of 10%, a standard deviation of future returns of 25%, and a beta of 1.25. Common stock B has an expected return of 12%, a standard deviation of future returns of 15%, and a beta of 1.50. Which stock is riskier?
Why is beta an important part of the equation?
Explain.
Purchase this Solution
Solution Summary
Questions on risk (as measured by beta and standard deviation of return) and return have been answered clearly and extensively in words with references.
Solution Preview
Please see the attached excel file which has the answers to the questions in an excel spreadshseet.
(see attachment for data table)
Which stock is riskier?
The risk of holding a stock has two components- systematic risk and unsystematic (unique) risk
Thus, Total risk = Systematic risk + Unsystematic risk
Systematic risk, also called market risk, influences a large number of firms..
Unsystematic (unique) risk affects a single firm or a small number of firms.
Systematic Risk is the risk associated with macroeconomic factors such as inflation, recession, changes in interest rates, natural shocks like hurricanes, droughts, earthquakes and by war and other political events etc.
Unsystematic (unique) risk is associated with company specific evants such as labor problems, litigation, company winning contracts, changes in management of a ...
Purchase this Solution
Free BrainMass Quizzes
Introduction to Finance
This quiz test introductory finance topics.
Writing Business Plans
This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.
Social Media: Pinterest
This quiz introduces basic concepts of Pinterest social media
Accounting: Statement of Cash flows
This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.
Managing the Older Worker
This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce