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Consider the following probability distribution for stocks X and Y: State 1 2 3 4 5 Probability 0.10 0.25 0.20 0.30 0.15 Return on Stock

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Consider the following probability distribution for stocks X and Y: State 1 2 3 4 5 Probability 0.10 0.25 0.20 0.30 0.15 Return on Stock X Return on Stock Y 10% 8% 13% 7% -12% 6% 14% 9% 15% The expected rates of return of stocks X and Y are and respectively. A 7.7%; 13.2% B 13.2%; 9% 8.3%; 5.25% 8.0%; 4.4% Question 15 1 Point The following table presents data for the stock XYZ and the market index . Expected return of XYZ Expected return of the market index Risk-free rate Standard deviation of returns for XYZ Standard deviation for the market index Correlation coefficient between XYZ and the market index 18% 12% 2.5% 6% 3% 0.45 Using the capital asset pricing model (CAPM), the required return of XYZ is closest to: 15.96% 11.05% 8.91% D) 12.28%

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