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 riskfree 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} =

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 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.
 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.
SelectIIIIIIIVVItem 3

Calculate each stock's required rate of return. Round your
answers to two decimal places.
r_{x} = %
r_{y} = %
 On the basis of the two stocks' expected and required returns,
which stock would be more attractive to a diversified
investor?
SelectStock XStock YItem 6

Calculate the required return of a portfolio that has $6,500
invested in Stock X and $4,500 invested in Stock Y. Do not round
intermediate calculations. Round your answer to two decimal
places.
r_{p} = %
 If the market risk premium increased to 6%, which of the two
stocks would have the larger increase in its required return?