Question

Stock X has a 10.5% expected return, a beta coefficient of 1.0, and a 30% 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?

For diversified investors the relevant risk is measured by standard deviation of expected returns. Therefore, the stock with the lower standard deviation of expected returns is more risky. Stock Y has the lower standard deviation so it is more risky than Stock X.

For diversified investors the relevant risk is measured by beta. Therefore, the stock with the higher beta is less risky. Stock Y has the higher beta so it is less risky than Stock X.

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.

For diversified investors the relevant risk is measured by standard deviation of expected returns. Therefore, the stock with the higher standard deviation of expected returns is more risky. Stock X has the higher standard deviation so it is more risky than Stock Y.

For diversified investors the relevant risk is measured by beta. Therefore, the stock with the lower beta is more risky. Stock X has the lower beta so it is more risky than Stock Y.

-Select-IIIIIIIVVItem 3

Calculate each stock's required rate of return. Round your answers to two decimal places.

rx = %

ry = %

On the basis of the two stocks' expected and required returns,
which stock would be more attractive to a diversified
investor?

-Select-Stock XStock YItem 6

Calculate the required return of a portfolio that has $8,000 invested in Stock X and $9,500 invested in Stock Y. Do not round intermediate calculations. Round your answer to two decimal places.

rp = %

If the market risk premium increased to 6%, which of the two
stocks would have the larger increase in its required return?

-Select-Stock XStock YItem 8

Answer #1

CV | = | SD/ER |

X | Y | |

Standard deviation (SD) | 30% | 30% |

ER | 10.50% | 12% |

There fore CV = | 2.86 | 2.5 |

Stock X is more risky | ||

CV shown that for every one % of return there is a risk of 2.86 of X and 2.5 of Y |

The stock with the higher standard deviation of expected returns is more risky. Stock X has the higher standard deviation so it is more risky than Stock Y

As per the view of Beta the stock which has higher beta is risky

The required rate of return | Rf = 6% Rm = 5% | Rf + B(Market risk premium) | ||

rx with beta 1 | 11% | { | 6+1(5) } | |

ry with beta 1.1 | 12% | { |
6+1.1(5) } |

On the basis of the two stocks' expected and required returns, the stock Y would be more attractive to a diversified investor .

Return® | weight(W) | RW | |

x | 11% | 0.46 | 5.029% |

y | 12% | 0.54 | 6.514% |

11.543% |

Stock X has a 10.5% expected return, a beta coefficient of 1.0,
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?
For...

Stock X has a 10.5% expected return, a beta coefficient of 1.0,
and a 35% standard deviation of expected returns. Stock Y has a
12.5% expected return, a beta coefficient of 1.2, and a 20.0%
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? For...

Stock X has a 9.5% expected return, a beta coefficient of 0.8,
and a 30% 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.
CVx =
CVy =
Which stock is riskier for a diversified investor?
For...

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.
CVx =
CVy =
Which stock is riskier for a diversified investor?
For...

Stock X has a 9.5% expected return, a beta coefficient of 0.8,
and a 35% standard deviation of expected returns. Stock Y has a
12.5% expected return, a beta coefficient of 1.2, 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...

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 X has a 10% expected return, a beta coefficient of 0.9,
and a 35% standard deviation of expected returns. Stock Y has a
12.5% expected return, a beta coefficient of 1.2, and a 25%
standard deviation. The risk-free rate is 6%, and the market risk
premium is 5%.
a. Calculate each stock’s coefficient of variation.
b. Which stock is riskier for a diversified investor?
c. Calculate each stock’s required rate of return.
d. On the basis of the two...

Stock X has a 10% expected return, a beta coefficient of 0.9,
and a 35% standard deviation of expected returns. Stock Y has a
12.5% expected return, a beta coefficient of 1.2, and a 25%
standard deviation. The risk-free rate is 6%, and the market risk
premium is 5%.
a. Calculate each stock’s coefficient of variation.
b. Which stock is riskier for a diversified investor?
c. Calculate each stock’s required rate of return.
d. On the basis of the two...

Stock X has a beta of 0.5 and Stock Y has a beta of 1.5. Which
of the following statements is most correct?
Select one:
a. If expected inflation increases (but the market risk premium
is unchanged), the required returns on the two stocks will decrease
by the same amount.
b. If investors' aversion to risk decreases (assume the
risk-free rate unchanged), Stock X will have a larger decline in
its required return than will stock Y.
c. If you...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 2 minutes ago

asked 2 minutes ago

asked 3 minutes ago

asked 9 minutes ago

asked 9 minutes ago

asked 23 minutes ago

asked 23 minutes ago

asked 28 minutes ago

asked 29 minutes ago

asked 30 minutes ago

asked 34 minutes ago

asked 36 minutes ago