Question

please answer all parts thankyou !

1)Stock X has a 10.0% expected return, a beta coefficient of 0.9, and a 40% standard deviation of expected returns. Stock Y has a 12.5% expected return, a beta coefficient of 1.2, and a 30% standard deviation. The risk-free rate is 6%, and the market risk premium is 5%.

Calculate each stock's coefficient of variation. Do not round intermediate calculations. Round your answers to two decimal places.

CVx = ___

CVy = ___

2)Calculate each stock's required rate of return. Round your answers to one decimal place.

rx = ___%

ry = ___%

3)Calculate the required return of a portfolio that has $6,000 invested in Stock X and $2,000 invested in Stock Y. Do not round intermediate calculations. Round your answer to two decimal places.

rp = ___ %

Answer 1

Given,

Risk free rate = 6%

Market risk premium = 5%

Stock X:-

Standard deviation = 40% or 0.40

Beta = 0.9

Expected return = 10%

Stock Y:-

Standard deviation = 30% or 0.30

Beta = 1.2

Expected return = 12.5%

Solution :-

CV - of stock x of Stock x Standard deviation Expected return 0.40 - 4.00 = (Vy - Standard deviation of stock y Expected return of Stock y 2.40 0.30 0.125 2) Rea Required rate of return = Rp + x (Rm - Rp) where, Rp = Risk-free rate Bx = beta of Stock x Rm = market rate of return Rm = market risk Premium & Risk-free date I 5% + 6% = 11% of 0.11

8x = 6% +0.9 (11% - 6%) = 6% +0.9 (5%) e 6% + 4.5% = 10.5% 8y = 6% + 1.2 (11% -6%) = 6% + 1.215%) = 6% t 6% = 12% 3) Investment in Stock x = $6000 Investment in Stock y = $2000 Total Investment in Portfolio - $ 6000 + $2000 - $ 8000 WX - Investment in Stock X Total Investment $6000 - 0.75 $8000

Wy - Investment in Stock y Total investment 0.25 $2000 $ 8000 Now, required return of portfolio = 18x) (Wx) + (8y) (Wy) = (10.5%:)(0.75) + (122)(0.25) = 7.875% + 3% = 10.88 % Thus, 8p = 10.88 %