CVx =Standard Deviation of X/Expected Return of Stock X
=35%/9.5% =3.68
CVy =Standard Deviation of Y/Expected Return of Stock
Y =20%/12.5% =1.60
Option V For diversified investors the relevant risk is measured by
beta. Therefore, the stock with the higher beta is more risky.
Stock Y has the higher beta so it is more risky than Stock X. is
correct option
Required Rate of X =Risk Free Rate+Beta*Market Risk Premium
=6%+0.8*5% =10%
Required Rate of Y =Risk Free Rate+Beta*Market Risk Premium
=6%+1.2*5% =12%
On the basis of expected rate and required rate Stock Y is more
attractive as 12.5% is more than 12%.
Required Rate of Portfolio =Weight of X*Return of X+Weight of
Y*Return of Y =8500/(8500+2500)*9.5%+2500/(8500+2500)*12.5%
=10.18%
Since Stock Y has higher beta , Stock Y will have larger increase
in required rate with increase in risk premium
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