Question

Required Rate of Return

Stock R has a beta of 1.9, Stock S has a beta of 0.65, the expected rate of return on an average stock is 12%, and the risk-free rate is 4%. By how much does the required return on the riskier stock exceed that on the less risky stock? Round your answer to two decimal places.

Historical Returns: Expected and Required Rates of Return

You have observed the following returns over time:

Year |
Stock X |
Stock Y |
Market |

2011 | 15% | 14% | 10% |

2012 | 19 | 6 | 12 |

2013 | -17 | -3 | -12 |

2014 | 3 | 2 | 3 |

2015 | 19 | 12 | 17 |

Assume that the risk-free rate is 6% and the market risk premium is 6%. Do not round intermediate calculations.

- What is the beta of Stock X? Round your answer to two decimal
places.

What is the beta of Stock Y? Round your answer to two decimal places.

- What is the required rate of return on Stock X? Round your
answer to one decimal place.

%

What is the required rate of return on Stock Y? Round your answer to one decimal place.

% - What is the required rate of return on a portfolio consisting
of 80% of Stock X and 20% of Stock Y? Round your answer to one
decimal place.

%

Answer #1

**Answer to Question
1:**

Riskier Stock:

Required Return = Risk-free Rate + Beta * (Market Return -
Risk-free Rate)

Required Return = 4.00% + 1.90 * (12.00% - 4.00%)

Required Return = 4.00% + 1.90 * 8.00%

Required Return = 19.20%

Less Risky Stock:

Required Return = Risk-free Rate + Beta * (Market Return -
Risk-free Rate)

Required Return = 4.00% + 0.65 * (12.00% - 4.00%)

Required Return = 4.00% + 0.65 * 8.00%

Required Return = 9.20%

Difference in Required Return = Required Return of Riskier Stock
- Required Return of Less Risky Stock

Difference in Required Return = 19.20% - 9.20%

Difference in Required Return = 10.00%

Historical Returns: Expected and Required Rates of Return
You have observed the following returns over time:
Year
Stock X
Stock Y
Market
2011
15%
14%
10%
2012
19
6
12
2013
-17
-3
-12
2014
3
2
3
2015
19
12
17
Assume that the risk-free rate is 6% and the market risk premium
is 6%. Do not round intermediate calculations.
What is the beta of Stock X? Round your answer to two decimal
places.
What is the beta of...

Stock R has a beta of 2.3, Stock S has a beta of 0.55, the
required return on an average stock is 10%, and the risk-free rate
of return is 6%. By how much does the required return on the
riskier stock exceed the required return on the less risky stock?
Round your answer to two decimal places.

Stock R has a beta of 1.5, Stock S has a beta of 0.75, the
required return on an average stock is 9%, and the risk-free rate
of return is 6%. By how much does the required return on the
riskier stock exceed the required return on the less risky stock?
Round your answer to two decimal places.
%

Stock R has a beta of 2.0, Stock S has a beta of 0.45, the
required return on an average stock is 14%, and the risk-free rate
of return is 3%. By how much does the required return on the
riskier stock exceed the required return on the less risky stock?
Round your answer to two decimal places.

Stock X has a 10.0% expected return, a beta coefficient of 0.9,
and a 40% standard deviation of expected returns. Stock Y has a
13.0% expected return, a beta coefficient of 1.3, and a 20%
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 =
Which stock is riskier for a diversified investor?
For...

Stock X has a 9.0% expected return, a beta coefficient of 0.7,
and a 35% standard deviation of expected returns. Stock Y has a
13.0% expected return, a beta coefficient of 1.3, and a 25%
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 =
Which stock is riskier for a diversified investor?
For...

Stock R has a beta of 2.0, Stock S has a beta of 0.95, the
required return on an average stock is 13%, and the risk-free rate
of return is 5%. By how much does the required return on the
riskier stock exceed the required return on the less risky stock?
Round your answer to two decimal places.
%

Stock R has a beta of 1.4, Stock S has a beta of 0.9, the
required return on an average stock is 10%, and the risk-free rate
of return is 7%. By how much does the required return on the
riskier stock exceed the required return on the less risky stock?
Round your answer to two decimal places.

Problem 2-14
Historical Returns: Expected and Required Rates of Return
You have observed the following returns over time:
Year
Stock X
Stock Y
Market
2011
16%
12%
13%
2012
19
7
10
2013
-15
-2
-14
2014
4
1
1
2015
24
9
17
Assume that the risk-free rate is 4% and the market risk premium
is 7%. Do not round intermediate calculations.
What is the beta of Stock X? Round your answer to two decimal
places.
What is...

Historical Returns: Expected and Required Rates of Return
You have observed the following returns over time:
Year
Stock X
Stock Y
Market
2012
16%
15%
12%
2013
21
6
11
2014
-16
-6
-11
2015
3
3
1
2016
22
12
13
Assume that the risk-free rate is 4% and the market risk premium
is 7%. Do not round intermediate calculations.
What is the beta of Stock X? Round your answer to two decimal
places.
What is the beta of...

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