Question 34 (3 marks) Consider the following information about Stocks A and B. The market risk premium is 7%, and the ri

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Question 34 3 Marks Consider The Following Information About Stocks A And B The Market Risk Premium Is 7 And The Ri 1 (29.11 KiB) Viewed 13 times

Question 34 (3 marks) Consider the following information about Stocks A and B. The market risk premium is 7%, and the risk-free rate is 3% Rate of Return if State Occurs Probability of state of economy Stock A Stock B State of economy Recession 0.15 0.02 -0.25 0.70 0.21 0.09 Normal 0.15 0.06 0.44 Irrational exuberance Which of the two stocks has higher systematic risk? a. Stock B because the variance on its return is much wider than that of Stock A b. Stock A because its beta is higher than that of Stock B c. Stock A because its returns are negatively related to the market portfolio returns d. Stocks A and B have the same system risk because their betas are all positive. Oa. Ob. Oo. Od