Stock X has a 9.5% expected return, a beta coefficient of 0.8, and a 35% standard deviation of expected returns. Stock Y has a 12.0% expected return, a beta coefficient of 1.1, 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 =
-Select-IIIIIIIVVItem 3
Calculate each stock's required rate of return. Round your answers to one decimal place.
rx = %
ry = %
-Select-Stock XStock YItem 6
rp = %
-Select-Stock XStock YItem 8
Coefficient of variation=Standard deviation/Expected
returns
Required return=risk free rate+beta*market risk premium
1.
=35%/9.5%=3.68421052631579
2.
=30%/12%=2.50
3.
For diversified investors the relevant risk is measured by beta.
Therefore, the stock with the higher beta is riskier. Stock Y has
the higher beta so it is riskier than Stock X.
4.
=6%+0.8*5%
=10.00%
5.
=6%+1.1*5%
=11.50%
6.
Stock Y
7.
=(4500*10%+1500*11.50%)/6000
=10.38%
8.
Stock Y
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