IS the chance that the project will result in a rate of return above 33 percent?

Question

IS the chance that the project will result in a rate of return above 33 percent? What is the probability that the project will result in losses (negative rates of return)? 3. The expected rate of return for the stock of Cornhusker Enterprises is 20 percent, with a standard deviation of 15 percent. The expected rate of return for the stock of Mustang Associates is 10 percent, with a standard deviation of 9 percent. a. Which stock would you consider to be riskier? Why? b. If you knew that the beta coefficient of Cornhusker stock is 1.5 and the beta of Mustang is 0.9, how would your answer to Part a change? Color blocks behind the numbers denote problems that have check answers provided at the end of the book

Explanation / Answer

a) to calculate the risk we would find the rate of return per unit risk

for cornhusker it is 20/15 = 1.33

for mustang = 10/9 = 1.11 so

so mustang is riskier as its expected return per unit risk is lower.

2) higher the beta the more the stock is volatile with respect to the market. because beta of cornhusker is more it is more risky.

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