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 12.0% expected return, a beta coefficient of 1.1, and a 30.0% standard deviation. The risk-free rate is 6%, and the market risk premium is 5%.
Calculate each stock's coefficient of variation. Round your answers to two decimal places. Do not round intermediate calculations.
CVx =
CVy =
Which stock is riskier for a diversified investor?
a) | CVx = 35/10 = 3.5 |
Cvy = 30/12 = 2.5 | |
[CV = SD/Expected return] | |
b) | Option II |
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. |
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