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Financial management (security risk return and rate)

1- Security A has an expected return of 7 percent a standard deviation of returns of 35 percent, a correlation coefficient with the market of -0.3, and a beta coefficient of -1.5. Security B has an expected return of 12 percent, a standard deviation of returns of 10 percent, a correlation with the market of 0.7, and a beta coefficient of 1.0. Which security is riskier? Why?.

2- An individual has $35,000 invested in a stock which has a beta of 0.8 and $40,000 invested in stock with a beta of 1.4. If these are the only two investment in her portfolio, what is her portfolio's beta?

3- Assume that the risk -free rate is 5 percent and the market risk premium is 6 percent. What is the expected return for the overall stock market? what is the required rate of return on a stock that has a beta of 1.2?

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Financial management (security risk return and rate)

1- Security A has an expected return of 7 percent a standard deviation of returns of 35 percent, a correlation coefficient with the market of -0.3, and a beta coefficient of -1.5. Security B has an expected return of 12 percent, a standard deviation of returns of 10 percent, a correlation with the market of 0.7, and a beta coefficient of 1.0. Which security is riskier? Why?

First, we need to find the risk per unit return for each security by using the coefficient of variable or CV.

CV = ...

Solution Summary

This solution is comprised of a detailed explanation to answer which security is riskier, what is her portfolio's beta, what is the expected return for the overall stock market and what is the required rate of return on a stock that has a beta of 1.2. 378 words

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