$(2\mathrm{.}5$ marks$)$ Question $7($Cost of capital and capital structure determination$)$

Stocks $x$ and $Y$ have the following probability distributions of expected future returns:

a$)$ Calculate the expected rate of return, widehat$(r),$ for Stock $Y.$ Return for Stock $x,(hat(r{)}_x=12\%).$

b$)$ Calculate the standard deviation of expected returns for Stock $x.($That for Stock $Y$ is

$20\mathrm{.}35$ percent.$)$

$(2\mathrm{.}5$ marks$)$ Question $8($Risk & Return$)$

Using the CAPM, estimate the appropriate required rate of return for the following three

stocks, given that the risk$-$free rate is $5$ percent, and the expected return for the market is $17$

percent.