Excel Online Structured Activity: Evaluating risk and return Stock X has a 10.0% expected return, a beta coeficient of 0.9, and a 30% standard deviation of expected returns. Stock Y has a 12.0% expected return, beta coefficient of 1.1, and a 20.0% standard deviation. The risk-free rate is 6%, and the market risk premium is 5%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet a. Calculate each stock's coefficient of variation. Round your answers to two decimal places. Do not round Intermediate calculations. CV- CV- b. Which stock is riskler for a diversified Investor? 1. 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. II. 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 soft is more risky than Stock X. III. 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. IV. 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. V. 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. Evaluating risk and return Expected retum of Stock X Beta coefficient of Stock X Standard deviation of Stock X retums 10.00% 0.90 30.00% Expected retum of Stock Y Beta coefficient of Stock Y Standard deviation of Stock Y retums 12.00% 1.10 20.00% 11 Risk-free rate (TRF) 12 Market risk premium (RPM) 6.00% 5.00% 14 15 Dollars of Stock X in portfolio Dollars of Stock Y in portfolio $7,500.00 $3,000.00 17 18 Coefficient of Variation for Stock X Coefficient of Variation for Stock Y Formulas #N/A #N/A 19 20 Riskier stock to a diviersified investor #N/A Required return for Stock X Required return for Stock Y #N/A #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 29 New market risk premium 6.00% With new market risk premium, stock with larger an incrone in renier
