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 25.0% 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.
CV_{x} =
CV_{y} =
Calculate each stock's required rate of return. Round your answers to two decimal places.
r_{x} = %
r_{y} = %
a. CVx =Standard Deviation/Expected Return =35%/10%=3.50
CVy =Standard Deviation/Expected Return =25%/12%=2.08
b. Option V 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%+1.1*5%=11.50%
d. Stock Y expected return is greater than required rate(12%
>11.50%)
e. the required rate of portfolio
=6000/14500*10.50%+8500/14500*11.50% =11.09%
f. Required rate of Stock Y will increase more because beta of
stock y is 1.1
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