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Q7B.

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Essentials Of Investments
Found in: Page 225
Essentials Of Investments

Essentials Of Investments

Book edition 9th
Author(s) Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus
Pages 748 pages
ISBN 9780078034695

Short Answer

Kaskin, Inc., stock has a beta of 1.2 and Quinn, Inc., stock has a beta of .6. Which of the following statements is most accurate?

a. The expected rate of return will be higher for the stock of Kaskin, Inc., than that of

Quinn, Inc.

b. The stock of Kaskin, Inc., has more total risk than Quinn, Inc.

c. The stock of Quinn, Inc., has more systematic risk than that of Kaskin, Inc.

a. Correct

b. Not accurate

c. Not accurate

See the step by step solution

Step by Step Solution

Given Information

Beta for stock Kaskin, Inc. = 1.2

Beta for Quinn, Inc. = 0.6

Comparison of expected rate of return for Kaskin Inc. and Quinn Inc.

According to expected return equation, the beta is directly proportional to expected rate of return. Since Beta of Kaskin, Inc. = 1.2 that is higher than Quinn, Inc. = 0.6, therefore the statement is correct.

Comparison of total risk for Kaskin Inc. and Quinn Inc

Since the data for only systematic risk is given, It cannot form the basis for commenting on the total risk of asset. Therefore the statement is not accurate.

Comparison of systematic risk for Kaskin Inc. and Quinn Inc

Since the Beta value or the systematic risk for Stock Kaskin Inc.(1.2 )is higher than Stock Quinn Inc. (0.6) Therefore the statement is not accurate.

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