Stock X has a 10.0% expected return, a beta coefficient of 0.9, and a 35% standard deviation of expected returns. Stock Y has a 13.0% expected return, a beta coefficient of 1.3, 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
CVx =Standard Deviation/Expected Return =35%/10%=3.50
CVy =Standard Deviation/Expected Return =30%/13%=2.31
b. Option I is correct option. Higher the beta higher the
risk.
c. Rx =Risk free rate+beta*(Market Return-Risk free
rate)=6%+0.9*5%=10.50%
Ry =Risk free rate+beta*(Market Return-Risk free
rate)=6%+1.3*5%=12.50%
d. Stock Y expected return is greater than required rate(13%
>12.50%)
e. the required rate of portfolio
=4500/6000*10.50%+1500/6000*12.50% =11.00%
f. Required rate of Stock Y will increase more because beta of
stock y is 1.3
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