Consider the following information on Stocks I and II: The market risk premium is 8 percent, and the risk-free rate is 3.6 percent. The beta of stock I is _____ and the beta of stock II is _____.
A)2.08; 2.47
B)2.08; 2.76
C)3.21; 3.84
D)4.47; 3.89
E)4.47; 4.26

Question

Consider the following information on Stocks I and II:  The market risk premium is 8 percent, and the risk-free rate is 3.6 percent. The beta of stock I is _____ and the beta of stock II is _____.
A)2.08; 2.47 
B)2.08; 2.76 
C)3.21; 3.84 
D)4.47; 3.89 
E)4.47; 4.26

Quizplus · Accepted Answer

E(R_I) = 0.06(0.15) + 0.25(0.35) + 0.69(0.43) = 0.3932B_I: 0.3932 = 0.036 + B_I (0.08); B_I = 4.47E(R_II) = 0.06(-0.35) + 0.25(0.35) + 0.69(0.45) = 0.0377B_II: 0.0377 = 0.036 + B_II (0.08); B_II = 4.26

Consider the Following Information on Stocks I and II