Purchase Solution

Total Risk

Not what you're looking for?

Ask Custom Question

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? Explain.

Purchase this Solution
Solution Summary

The solution explains the concepts briefly and concisely. The answer is to the point and can easily be understood by a student with a basic understanding of the topic. Overall, an excellent response.

Solution Preview

Stock A has a higher total risk. However, Stock B has a higher market risk. A true measure of riskiness is beta and not ...

Purchase this Solution
Free BrainMass Quizzes
Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

View More Free Quizzes
Related BrainMass Solutions

  • Unique Risk (Firm-specific risk) vs Market Risk (Systematic risk)

    Since standard deviation of the Ford is higher, it has more total risk. c) Unique risk = Total Risk - Market Risk Since Total risk of Ford is higher than GM and Market risk of Ford is lower than GM, the unique risk of Ford is higher.

  • Risk, beta and exchange rate risk

    Total risk would be higher than systematic risk and so we would expect to have a higher return for total risk as compared to unsystematic risk which is lower than total risk.

  • Risk - Theory

    471729 Total risk What constitutes total risk, and how is it measured? Of the two components of total risk, discuss which one investors can eliminate? Explain the remaining risk, and how is it measured?

  • Total risk affects a firm's production costs

    What is the relation between the effects of total risk on a firm's sales and costs and its desire to hedge foreign exchange risk? How might total risk affect a firm's production costs and its ability to sell?

  • Index Models for IBM and GE returns

    Use equation 8.10 to decompose total risk for IBM into systematic risk and firm-specific risk. That is, calculate total risk, systematic risk and firm-specific risk for IBM. 5.

  • Bank Ratios

    Tier 1 capital = $40 billion Tier 2 capital = $20 billion Risk weighted assets = $550 billion Total capital = Tier 1 capital + Tier 2 capital = $40 billion + $20 billion = $60 billion Total risk based capital ratio = Total capital/Risk weighted

  • Cost of capital, discount rate and true NPV

    Total Market Value Total Debt Value Beta Risk Premium T-Bill Rate Risk Free Rate Tax Rate Okefenokee Real Estate Company 6 million 4 million 1.5 6% 4% 0 0 a. What is the required return on Okefenokee stock?

  • Calculating Risk Using Beta & Standard Deviation of Return

    Total risk is measured by standard deviation of returns- higher the standard deviation of returns, higher is the total risk. Systematic risk is measured by beta.

  • Risk based capital ratios

    Tier 2) ratio = Total capital (Tier 1 and Tier 2) / Risk-adjusted assets >=10% 1) Tier 1 capital ratio = Tier 1 capital / Risk-adjusted assets >=6% =40/550 =7.27% 2) Total capital (Tier 1 and Tier 2) ratio = Total capital (Tier 1 and Tier 2)

  • Risk Measurement Tool

    Debt ratio can be computed by dividing the total debt by total assets. Debt ratio = Total debt / Total assets This ratio measures the percentage of total assets that are financed by debt.

View More Related Solutions