a. 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% 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 =

b. Which stock is riskier for a diversified investor?

- For diversified investors the relevant risk is measured by beta. Therefore, the stock with the lower beta is riskier. Stock X has the lower beta so it is riskier 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 riskier. Stock Y has the lower standard deviation so it is riskier 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 riskier. Stock Y has the higher beta so it is riskier 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 riskier. Stock X has the higher standard deviation so it is riskier than Stock Y.

-Select-

c. Calculate each stock's required rate of return. Round your answers to one decimal place.

rx = % ry = %

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

-Select-

e. Calculate the required return of a portfolio that has $3,000 invested in Stock X and $1,000 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-