1. If the standard deviations for return on stock A and stock B are 28% and...
1. If the standard deviations for return on stock A and stock B are 28% and 26%
respectively and the betas for two stock are 0. 8 and 0.9, which statement as following is
correct?
A. Stock A has a higher systematic risk than Stock B
B. Stock A has a lower total risk than Stock B
C. Stock A has a higher total risk than Stock B
D. All of the above statements are false
2. You purchased XYZ Inc common stock one year ago for $50 per share. You received a
dividend of $2 per share today and decide to take your profits by selling at $54.50 per
share. What are your holding period return and capital gain yield respectively?
A)13.0%and 9%
B)13.0%and 3.5%
C)9%and 3.5%
D)9%and 13%
Homework Answers
1.
As beta of stock A is lower this means it has lower systematic risk,
But Standard Deviation of Stock A is higher which means it has higher total risk.
Option C is correct.
2.
HPY = (2 + (54.50 - 50)/50 = 13%
Capital Gain Yield = 4.50/50 = 9%
Option A is correct.
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