Evaluating risk and return Expected return of Stock X 10 00 Beta coefficient of Stock X 0 90 Standard deviation of Stock X returns 35 00 Expected return of Stock Y 12 50 Beta coefficient of Stock Y 1 20 Standard deviation of Stock Y returns 30 00 Risk free rate (r RF ) 6 00 Market risk premium (RP M ) 5 00 Dollars of Stock X in portfolio $9,500 00 Dollars of Stock Y in portfolio $6,500 00 Formulas Coefficient of Variation for Stock X N A Coefficient of Variation for Stock Y N A Riskier stock to a diviersified investor N A Required return for Stock X N A Required return for Stock Y N A Stock more attractive to a diversified investor N A Required return of portfolio containing Stocks X and Y in amounts above N A New market risk premium 6 00 With new market risk premium, stock with larger increase in required return N A Check New required return, Stock X N A Change in required return, Stock X N A New required return, Stock Y N A Change in required return, Stock Y N A Stock with greater change in required return N A Calculate each stock's coefficient of variation Round your answers to two decimal places Do not round intermediate calculations CV x fill in the blank 2 CV y fill in the blank 3 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 IIIIIIIVV Calculate each stock's required rate of return Round your answers to two decimal places r x fill in the blank 5 r y fill in the blank 6 On the basis of the two stocks' expected and required returns, which stock would be more attractive to a diversified investor Stock XStock Y Calculate the required return of a portfolio that has $9,500 invested in Stock X and $6,500 invested in Stock Y Do not round intermediate calculations Round your answer to two decimal places r p fill in the blank 8 If the market risk premium increased to 6 , which of the two stocks would have the larger increase in its required return Stock XStock Y

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Evaluating risk and return Expected return of Stock X 10.00% Beta coefficient of Stock X 0.90 Standard deviation of Stock X returns 35.00% Expected return

Evaluating risk and return

Expected return of Stock X	10.00%
Beta coefficient of Stock X	0.90
Standard deviation of Stock X returns	35.00%

Expected return of Stock Y	12.50%
Beta coefficient of Stock Y	1.20
Standard deviation of Stock Y returns	30.00%

Risk-free rate (r_RF)	6.00%
Market risk premium (RP_M)	5.00%

Dollars of Stock X in portfolio	$9,500.00
Dollars of Stock Y in portfolio	$6,500.00
		Formulas
Coefficient of Variation for Stock X		#N/A
Coefficient of Variation for Stock Y		#N/A

Riskier stock to a diviersified investor		#N/A

Required return for Stock X		#N/A
Required return for Stock Y		#N/A

Stock more attractive to a diversified investor		#N/A

Required return of portfolio containing Stocks X and Y in amounts above		#N/A

New market risk premium	6.00%
With new market risk premium, stock with larger increase in required return		#N/A

Check:
New required return, Stock X		#N/A
Change in required return, Stock X		#N/A

New required return, Stock Y		#N/A
Change in required return, Stock Y		#N/A

Stock with greater change in required return		#N/A

Calculate each stock's coefficient of variation. Round your answers to two decimal places. Do not round intermediate calculations.

CV_x = fill in the blank 2

CV_y = fill in the blank 3
Which stock is riskier for a diversified investor?
1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
IIIIIIIVV
Calculate each stock's required rate of return. Round your answers to two decimal places.

r_x = fill in the blank 5%

r_y = fill in the blank 6%
On the basis of the two stocks' expected and required returns, which stock would be more attractive to a diversified investor?

Stock XStock Y
Calculate the required return of a portfolio that has $9,500 invested in Stock X and $6,500 invested in Stock Y. Do not round intermediate calculations. Round your answer to two decimal places.

r_p = fill in the blank 8%
If the market risk premium increased to 6%, which of the two stocks would have the larger increase in its required return?

Stock XStock Y