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    Expected return on a stock; Beta vs standard deviation

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    The stock of Uptown Men's Wear is expected to produce the following returns given the various states of the economy. What is the expected return on this stock?

    Probabilities:
    Recession:0.2
    Normal:0.5
    Boom:0.3

    Returns:
    Recession:-12%
    Normal:13%
    Boom:25%

    Answer
    12.6 percent
    10.4 percent
    7.9 percent
    11.6 percent
    9.1 percent

    The difference between beta and standard deviation is best described as:

    Answer
    Beta measures the risk of the market as a whole, while standard deviation measures the risk of individual stocks.
    Beta measures total volatility, while standard deviation measures total risk.
    Beta measures the market risk premium, while standard deviation measures risk.
    Beta measures the risk investors are compensated for, while standard deviation measures both systematic and unsystematic risk.

    A company you are researching has common stock with a beta of 1.35. Currently, Treasury bills yield 2.5%, and the market portfolio offers an expected return of 11.5%. What is the required return on this common stock?

    Answer
    10.93%
    11.86%
    21.43%
    14.65%

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    Solution Preview

    The stock of Uptown Men's Wear is expected to produce the following returns given the various states of the economy. What is the expected return on this stock?

    Probabilities:
    Recession:0.2
    Normal:0.5
    Boom:0.3 ...

    Solution Summary

    Expected return on a stock; Beta vs standard deviation; Required return on common stock

    $2.19