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.
CV_{x} =
CV_{y} =
-Select-
Calculate each stock's required rate of return. Round your answers to one decimal place.
r_{x} = %
r_{y} = %
-Select-
r_{p} = %
-Select- Stock X or Stock Y I
a. CVx =Standard Deviation/Expected Return =35%/9%=3.89
CVy =Standard Deviation/Expected Return =25%/13%=1.92
b. Option
III is correct option. Higher the beta higher the
risk.
c. Rx =Risk free rate+beta*(Market Return-Risk free
rate)=6%+0.7*5%=9.5%
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%)(Hence Stock Y is more attractive)
e. the required rate of portfolio
=9000/12000*9.5%+3000/12000*12.50% =10.25%
f. Required rate of Stock Y will
increase more because beta of stock Y is 1.3
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